---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10−Q

(Mark One)

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

For the quarterly period ended: March 31, 2011

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

For the transition period from _____________ to
_____________

Commission File Number: **001-32898**

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

|Nevada                          | 88-0442833                          
|------------------------------- | ------------------------------------
|(State or other jurisdiction of | (I.R.S. Employer Identification No.)
|incorporation or organization)  |                                     

BAK Industrial ParkNo. 1 BAK
StreetKuichong Town, Longgang DistrictShenzhen 518119Peoples Republic of China(Address of principal
executive offices, Zip Code)

(86-755) 8977-0093(Registrants
telephone number, including area code)

____________________________________________________________________________(Former name, former address and former fiscal year, if changed since last
report)

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 Web site, 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 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                   [X]
|--------------------------------------------------- | ---------------------------------------------
|                                                    |                                              
|Non-accelerated filer   [  ]                        | Smaller reporting company [   ]              
|(Do not check if a smaller
      reporting company) |                                              

Indicate by check mark whether the registrant is a shell company
  (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ]             No [X]

The number of shares outstanding of each of the issuers
  classes of common stock, as of May 9, 2011 is as follows:

|Class of Securities            | Shares Outstanding
|------------------------------ | ------------------
|Common Stock, $0.001 par value | 63,616,276        

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|                       
|-----------------------
|CHINA BAK BATTERY, INC.
|                       
|                       

TABLE OF CONTENTS

|               | **PART
      I** FINANCIAL INFORMATION                                                             |    
|-------------- | -------------------------------------------------------------------------------------------------- | ---
|               |                                                                                                    |    
|ITEM
      1.  | FINANCIAL
      STATEMENTS                                                                         | F-1
|ITEM
      2.  | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS. | 1  
|ITEM
      3.  | QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                                  | 18 
|ITEM
      4.  | CONTROLS
      AND PROCEDURES.                                                                     | 18 
|               |                                                                                                    |    
|               | **PART
      II** OTHER INFORMATION                                                                |    
|               |                                                                                                    |    
|ITEM
      1.  | LEGAL
      PROCEEDINGS.                                                                           | 19 
|ITEM
      1A. | RISK
      FACTORS.                                                                                | 19 
|ITEM
      2.  | UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.                                 | 19 
|ITEM
      3.  | DEFAULTS
      UPON SENIOR SECURITIES.                                                             | 19 
|ITEM
      4.  | (REMOVED
      AND RESERVED).                                                                      | 19 
|ITEM
      5.  | OTHER
      INFORMATION.                                                                           | 19 
|ITEM
      6.  | EXHIBITS.                                                                                          | 19 

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PART IFINANCIAL INFORMATION

ITEM
1.           FINANCIAL
STATEMENTS.

CHINA BAK BATTERY, INC. AND SUBSIDIARIESCONDENSED
INTERIM CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2011

|Contents                                                                                                                                                  | Page      
|--------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------
|Condensed Interim
      Consolidated Balance Sheets as of September 30, 2010 and March 31, 2011
      (unaudited)                                         | F-2 - F-3 
|Condensed Interim Consolidated Statements
      of Operations and Comprehensive Loss for the three months ended March 31,
      2010 and 2011 (unaudited) | F-4       
|Condensed Interim
      Consolidated Statements of Operations and Comprehensive Loss for the six
      months ended March 31, 2010 and 2011 (unaudited)   | F-5       
|Condensed Interim Consolidated Statements
      of Shareholders Equity for the six months ended March 31, 2010 and 2011
      (unaudited)                | F-6       
|Condensed Interim
      Consolidated Statements of Cash Flows for the three months ended March 31,
      2010 and 2011 (unaudited)                        | F7 - F-8  
|Condensed Interim Consolidated
      Statements of Cash Flows for the six months ended March 31, 2010 and 2011
      (unaudited)                          | F-9 - F-10
|Notes to the Condensed
      Consolidated Financial Statements (unaudited)                                                                                | F-11- F-39

F-1

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PART IFINANCIAL INFORMATION

Item
1.           Financial
Statements.

China BAK Battery, Inc. and subsidiariesCondensed
interim consolidated balance sheetsAs of September 30, 2010 and
March 31, 2011
  (In US$)

|                                   |  |      |  |   | September 30, |  |   | March 31,   | 
|---------------------------------- |  | ---- |  | - | ------------- |  | - | ----------- | 
|                                   |  | Note |  |   | 2010          |  |   | 2011        | 
|                                   |  |      |  |   |               |  |   | (Unaudited) | 
|Assets                             |  |      |  |   |               |  |   |             | 
|Current assets                     |  |      |  |   |               |  |   |             | 
|Cash and cash equivalents          |  |      |  | $ | 22,588,635    |  | $ | 25,557,962  | 
|Pledged deposits                   |  | 2    |  |   | 9,425,838     |  |   | 5,882,359   | 
|Trade accounts receivable, net     |  | 3    |  |   | 86,198,239    |  |   | 91,586,477  | 
|Inventories                        |  | 4    |  |   | 64,048,366    |  |   | 66,797,093  | 
|Prepayments and other receivables  |  | 5    |  |   | 5,513,221     |  |   | 3,807,485   | 
|Deferred tax assets                |  |      |  |   | 6,887,723     |  |   | 7,451,629   | 
|                                   |  |      |  |   |               |  |   |             | 
|Total current assets               |  |      |  |   | 194,662,022   |  |   | 201,083,005 | 
|                                   |  |      |  |   |               |  |   |             | 
|Property, plant and equipment, net |  | 6    |  |   | 228,884,576   |  |   | 232,296,998 | 
|Lease prepayments, net             |  |      |  |   | 31,924,396    |  |   | 32,332,093  | 
|Intangible assets, net             |  |      |  |   | 184,367       |  |   | 166,746     | 
|Deferred tax assets                |  |      |  |   | 1,680,348     |  |   | 1,719,874   | 
|                                   |  |      |  |   |               |  |   |             | 
|Total
      assets                 |  |      |  | $ | 457,335,709   |  | $ | 467,598,716 | 

See accompanying notes to the condensed interim consolidated
financial statements.

F-2

---

China BAK Battery, Inc. and subsidiariesCondensed
interim consolidated balance sheetsAs of September 30, 2010 and
March 31, 2011 (continued)
  (In US$)

|                                                                                                                                                               |  |      |  |   | September 30, |   |   | March 31,   |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- |  | - | ------------- | - | - | ----------- | -
|                                                                                                                                                               |  | Note |  |   | 2010          |   |   | 2011        |  
|                                                                                                                                                               |  |      |  |   |               |   |   | (Unaudited) |  
|Liabilities                                                                                                                                                    |  |      |  |   |               |   |   |             |  
|Current liabilities                                                                                                                                            |  |      |  |   |               |   |   |             |  
|Short-term bank loans                                                                                                                                          |  | 7    |  | $ | 137,418,187   |   | $ | 142,447,010 |  
|Current maturities of long-term bank loans                                                                                                                     |  | 8    |  |   | 11,956,002    |   |   | 15,270,440  |  
|Accounts and bills payable                                                                                                                                     |  |      |  |   | 93,724,448    |   |   | 109,598,805 |  
|Accrued expenses and other payables                                                                                                                            |  |      |  |   | 22,411,066    |   |   | 19,094,969  |  
|                                                                                                                                                               |  |      |  |   |               |   |   |             |  
|Total current liabilities                                                                                                                                      |  |      |  |   | 265,509,703   |   |   | 286,411,224 |  
|                                                                                                                                                               |  |      |  |   |               |   |   |             |  
|Long-term bank loans, less current maturities                                                                                                                  |  | 8    |  |   | 29,890,004    |   |   | 15,270,440  |  
|Deferred revenue                                                                                                                                               |  |      |  |   | 7,352,941     |   |   | 7,390,893   |  
|Other long-term payables                                                                                                                                       |  | 9    |  |   | 3,431,373     |   |   | 10,892,883  |  
|Deferred tax liabilities                                                                                                                                       |  |      |  |   | 718,912       |   |   | 728,907     |  
|                                                                                                                                                               |  |      |  |   |               |   |   |             |  
|Total
      liabilities                                                                                                                                        |  |      |  |   | 306,902,933   |   |   | 320,694,347 |  
|                                                                                                                                                               |  |      |  |   |               |   |   |             |  
|Commitments and contingencies                                                                                                                                  |  | 13   |  |   |               |   |   |             |  
|                                                                                                                                                               |  |      |  |   |               |   |   |             |  
|Shareholders equity                                                                                                                                           |  |      |  |   |               |   |   |             |  
|Common stock US$ 0.001 par value;                                                                                                                              |  |      |  |   |               |   |   |             |  
|100,000,000 authorized; 63,612,526 and 63,616,276 issued
      
                and outstanding
      as of September 30, 2010 and March 31, 2011 respectively |  |      |  |   | 63,613        |   |   | 63,617      |  
|Donated shares                                                                                                                                                 |  |      |  |   | 14,101,689    |   |   | 14,101,689  |  
|Additional paid-in capital                                                                                                                                     |  |      |  |   | 124,551,522   |   |   | 125,485,853 |  
|Statutory reserves                                                                                                                                             |  |      |  |   | 7,314,565     |   |   | 7,645,303   |  
|Accumulated deficit                                                                                                                                            |  |      |  |   | (19,542,138   | ) |   | (27,614,228 | )
|Accumulated other comprehensive income                                                                                                                         |  |      |  |   | 28,010,135    |   |   | 31,288,745  |  
|                                                                                                                                                               |  |      |  |   | 154,499,386   |   |   | 150,970,979 |  
|Less: Treasury
      shares                                                                                                                                    |  |      |  |   | (4,066,610    | ) |   | (4,066,610  | )
|                                                                                                                                                               |  |      |  |   |               |   |   |             |  
|Total
      shareholders equity                                                                                                                               |  |      |  |   | 150,432,776   |   |   | 146,904,369 |  
|                                                                                                                                                               |  |      |  |   |               |   |   |             |  
|Total liabilities and shareholders equity                                                                                                                     |  |      |  | $ | 457,335,709   |   | $ | 467,598,716 |  

See accompanying notes to the condensed interim consolidated
financial statements.

F-3

---

China BAK Battery, Inc. and subsidiariesCondensed
interim consolidated statements of operations and comprehensive
lossFor the three months ended March 31, 2010 and 2011(Unaudited) 
  (In US$)

|                                                   |   | Three
      months ended March 31, |  
|-------------------------------------------------- | - | ---------------------------------- | -
|                                                   |   | 2010                               |  
|Net revenues                                       | $ | 50,423,715                         |  
|Cost of revenues                                   |   | (41,420,960                        | )
|Gross profit                                       |   | 9,002,755                          |  
|Operating expenses:                                |   |                                    |  
|Research and development
      expenses            |   | (1,625,378                         | )
|Sales and marketing expenses                       |   | (1,705,649                         | )
|General and administrative
      expenses          |   | (4,818,460                         | )
|Total operating expenses                           |   | (8,149,487                         | )
|Operating income / (loss)                          |   | 853,268                            |  
|Finance costs, net                                 |   | (2,190,607                         | )
|Government grant income                            |   | 78,970                             |  
|Other (expense) / income                           |   | (145,024                           | )
|Loss before income taxes                           |   | (1,403,393                         | )
|Income tax (expense) / benefits                    |   | (1,146,418                         | )
|Net loss                                           | $ | (2,549,811                         | )
|Other comprehensive (loss) / income                |   |                                    |  
|- Foreign currency
      translation adjustment    |   | (164,260                           | )
|Comprehensive loss                                 | $ | (2,714,071                         | )
|Net loss per share:                                |   |                                    |  
|- Basic                                            | $ | (0.04                              | )
|- Diluted                                          | $ | (0.04                              | )
|Weighted average number of shares of common stock: |   |                                    |  
|- Basic                                            |   | 62,881,663                         |  
|- Diluted                                          |   | 62,881,663                         |  

See accompanying notes to the condensed interim consolidated
financial statements.

F-4

---

China BAK Battery, Inc. and subsidiariesCondensed
interim consolidated statements of operations and comprehensive
lossFor the six months ended March 31, 2010 and 2011(Unaudited) 
  (In US$)

|                                                   |   | Six
      months ended March 31, |  
|-------------------------------------------------- | - | -------------------------------- | -
|                                                   |   | 2010                             |  
|Net revenues                                       | $ | 100,651,267                      |  
|Cost of revenues                                   |   | (82,088,632                      | )
|Gross profit                                       |   | 18,562,635                       |  
|Operating expenses:                                |   |                                  |  
|Research and development
      expenses            |   | (3,393,485                       | )
|Sales and marketing expenses                       |   | (3,733,619                       | )
|General and administrative
      expenses          |   | (13,455,800                      | )
|Total operating expenses                           |   | (20,582,904                      | )
|Operating loss                                     |   | (2,020,269                       | )
|Finance costs, net                                 |   | (4,343,733                       | )
|Government grant income                            |   | 434,274                          |  
|Other (expense) / income                           |   | (138,308                         | )
|Loss before income taxes                           |   | (6,068,036                       | )
|Income tax benefits                                |   | 125,898                          |  
|Net loss                                           | $ | (5,942,138                       | )
|Other comprehensive (loss) / income                |   |                                  |  
|- Foreign currency
      translation adjustment    |   | (271,606                         | )
|Comprehensive loss                                 | $ | (6,213,744                       | )
|Net loss per share:                                |   |                                  |  
|- Basic                                            | $ | (0.10                            | )
|- Diluted                                          | $ | (0.10                            | )
|Weighted average number of shares of common stock: |   |                                  |  
|- Basic                                            |   | 61,984,941                       |  
|- Diluted                                          |   | 61,984,941                       |  

See accompanying notes to the condensed interim consolidated
financial statements.

F-5

---

China BAK Battery, Inc. and subsidiariesCondensed
interim consolidated statements of shareholders equityFor the six
months ended March 31, 2010 and 2011
  (Unaudited)

Retained
      
      
      AccumulatedShares
        of common stock
      
      
      
      
      
      Additional
      
      
      
      
      
      earnings /
      
      
      other
      
      
      Treasury
        shares
      
      
      TotalNumber of
      
      
      
      
      
      Donated
      
      
      paid-in
      
      
      Statutory
      
      
      (accumulated
      
      
      comprehensive
      
      
      Number of
      
      
      
      
      
      shareholdersshares
      
      
      Amount
      
      
      shares
      
      
      capital
      
      
      reserves
      
      
      deficit)
      
      
      income
      
      
      shares
      
      
      Amount
      
      
      equityBalance as of October 1, 2009
      
      57,737,481
      
      $
      57,738
      
      $
      14,101,689
      
      $
      101,161,455
      
      $
      7,227,195
      
      $
      13,328,115
      
      $
      24,791,288
      
      
      (721,030
      )
      $
      (4,066,610
      )
      $
      156,600,870Net loss
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (5,942,138
      )
      
      -
      
      
      -
      
      
      -
      
      
      (5,942,138
      )Share-based compensation for employee stock
        awards
      
      -
      
      
      -
      
      
      -
      
      
      1,944,885
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1,944,885Exercise of stock options awards
      
      70,045
      
      
      70
      
      
      -
      
      
      226,526
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      226,596Issuance of common stock to non- employee
        directors
      
      7,500
      
      
      7
      
      
      -
      
      
      (7
      )
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -Issuance of new common stock
      
      5,790,000
      
      
      5,790
      
      
      -
      
      
      19,383,694
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      19,389,484Appropriation to statutory reserves
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      87,370
      
      
      (87,370
      )
      
      -
      
      
      -
      
      
      -
      
      
      -Foreign currency translation adjustment
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (271,606
      )
      
      -
      
      
      -
      
      
      (271,606
      )Balance as of March 31, 2010
      
      63,605,026
      
      $
      63,605
      
      $
      14,101,689
      
      $
      122,716,553
      
      $
      7,314,565
      
      $
      7,298,607
      
      $
      24,519,682
      
      
      (721,030
      )
      $
      (4,066,610
      )
      $
      171,948,091Balance as of October 1, 2010
      
      63,612,526
      
      $
      63,613
      
      $
      14,101,689
      
      $
      124,551,522
      
      $
      7,314,565
      
      $
      (19,542,138
      )
      $
      28,010,135
      
      
      (721,030
      )
      $
      (4,066,610
      )
      $
      150,432,776Net loss
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (7,741,352
      )
      
      -
      
      
      -
      
      
      -
      
      
      (7,741,352
      )Share-based compensation for employee stock
        awards
      
      -
      
      
      -
      
      
      -
      
      
      934,335
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      934,335Issuance of common stock to non- employee
        directors
      
      3,750
      
      
      4
      
      
      -
      
      
      (4
      )
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -Appropriation to statutory reserves
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      330,738
      
      
      (330,738
      )
      
      -
      
      
      -
      
      
      -
      
      
      -Foreign currency translation adjustment
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      3,278,610
      
      
      -
      
      
      -
      
      
      3,278,610Balance as of March 31, 2011
      
      63,616,276
      
      $
      63,617
      
      $
      14,101,689
      
      $
      125,485,853
      
      $
      7,645,303
      
      $
      (27,614,228
      )
      $
      31,288,745
      
      
      (721,030
      )
      $
      (4,066,610
      )
      $
      146,904,369


See accompanying notes to the condensed interim consolidated
financial statements.

F-6

---

China BAK Battery, Inc. and subsidiariesCondensed
interim consolidated statements of cash flowsFor the three months
ended March 31, 2010 and 2011(Unaudited) 
  (In US$)

|                                                                                                   |   | Three
      months ended March 31, |  
|-------------------------------------------------------------------------------------------------- | - | ---------------------------------- | -
|                                                                                                   |   | 2010                               |  
|Cash flow from operating activities                                                                |   |                                    |  
|Net loss                                                                                           | $ | (2,549,811                         | )
|Adjustments to reconcile net loss to net cash (used in ) /
      provided by operating activities: |   |                                    |  
|Depreciation and
      amortization                                                                |   | 4,600,067                          |  
|Provision for / (recovery of) doubtful
      debts                                                 |   | 921,213                            |  
|Provision for /
      (recovery of) obsolete inventories                                           |   | 142,130                            |  
|Share-based compensation                                                                           |   | 799,675                            |  
|Deferred income
      taxes                                                                        |   | 200,170                            |  
|Deferred revenue                                                                                   |   | (58,587                            | )
|Exchange loss /
      (gain)                                                                       |   | 416,069                            |  
|                                                                                                   |   |                                    |  
|Changes in operating assets and liabilities:                                                       |   |                                    |  
|Trade accounts receivable                                                                          |   | (10,399,402                        | )
|Inventories                                                                                        |   | 3,475,403                          |  
|Prepayments and other receivables                                                                  |   | 4,754,453                          |  
|Accounts and bills
      payable                                                                   |   | (7,593,860                         | )
|Accrued expenses and other payables                                                                |   | 3,774,284                          |  
|                                                                                                   |   |                                    |  
|Net cash (used in) / provided by operating activities                                              |   | (1,518,196                         | )
|                                                                                                   |   |                                    |  
|Cash flow from investing activities                                                                |   |                                    |  
|                                                                                                   |   |                                    |  
|Purchases of property, plant and equipment                                                         |   | (3,803,885                         | )
|Purchases of intangible assets                                                                     |   | (135                               | )
|                                                                                                   |   |                                    |  
|Net cash used in investing activities                                                              | $ | (3,804,020                         | )

See accompanying notes to the condensed interim consolidated
financial statements.

F-7

---

China BAK Battery, Inc. and subsidiariesCondensed
interim consolidated statements of cash flowsFor the three months
ended March 31, 2010 and 2011(continued)(Unaudited) 
  (In US$)

|                                                             |   | Three
      months ended March 31, |  
|------------------------------------------------------------ | - | ---------------------------------- | -
|                                                             |   | 2010                               |  
|Cash flow from financing activities                          |   |                                    |  
|                                                             |   |                                    |  
|Proceeds from borrowings                                     | $ | 100,894,215                        |  
|Repayment of borrowings                                      |   | (74,554,760                        | )
|Decrease in pledged deposits                                 |   | 1,017,887                          |  
|                                                             |   |                                    |  
|Net cash provided by financing activities                    |   | 27,357,342                         |  
|Effect of exchange rate changes on cash and cash equivalents |   | (693,641                           | )
|                                                             |   |                                    |  
|Net increase in cash and cash equivalents                    |   | 21,341,485                         |  
|Cash and cash equivalents at the beginning
      of period   |   | 18,302,923                         |  
|                                                             |   |                                    |  
|Cash and cash equivalents at the end of
      period         | $ | 39,644,408                         |  
|                                                             |   |                                    |  
|Supplemental disclosure of cash flow information:            |   |                                    |  
|                                                             |   |                                    |  
|Cash received during the period for:                         |   |                                    |  
|Bills receivable discounted to banks                         | $ | -                                  |  
|                                                             |   |                                    |  
|Cash paid during the period for:                             |   |                                    |  
|Income taxes                                                 | $ | -                                  |  
|                                                             |   |                                    |  
|Interest, net of
      amounts capitalized                   | $ | 1,819,958                          |  

See accompanying notes to the condensed interim consolidated
financial statements.

F-8

---

China BAK Battery, Inc. and subsidiariesCondensed
interim consolidated statements of cash flowsFor the six months
ended March 31, 2010 and 2011(Unaudited) 
  (In US$)

|                                                                                                   |   | Six
      months ended March 31, |  
|-------------------------------------------------------------------------------------------------- | - | -------------------------------- | -
|                                                                                                   |   | 2010                             |  
|Cash flow from operating activities                                                                |   |                                  |  
|Net loss                                                                                           | $ | (5,942,138                       | )
|Adjustments to reconcile net loss to net cash (used in ) /
      provided by operating activities: |   |                                  |  
|Depreciation and
      amortization                                                                |   | 8,792,802                        |  
|Provision for doubtful debts                                                                       |   | 5,657,549                        |  
|Recovery of obsolete
      inventories                                                             |   | (138,125                         | )
|Share-based compensation                                                                           |   | 1,944,885                        |  
|Deferred income
      taxes                                                                        |   | (1,294,485                       | )
|Deferred revenue                                                                                   |   | (117,174                         | )
|Exchange loss/(gain)                                                                               |   | 153,511                          |  
|                                                                                                   |   |                                  |  
|Changes in operating assets and liabilities:                                                       |   |                                  |  
|Trade accounts receivable                                                                          |   | (5,924,142                       | )
|Inventories                                                                                        |   | (10,097,219                      | )
|Prepayments and other receivables                                                                  |   | (3,442,801                       | )
|Accounts and bills
      payable                                                                   |   | (12,388,975                      | )
|Accrued expenses and other payables                                                                |   | 3,905,219                        |  
|                                                                                                   |   |                                  |  
|Net cash (used in) / provided by operating activities                                              |   | (18,891,093                      | )
|                                                                                                   |   |                                  |  
|Cash flow from investing activities                                                                |   |                                  |  
|                                                                                                   |   |                                  |  
|Purchases of property, plant and equipment                                                         |   | (7,708,534                       | )
|Purchases of intangible assets                                                                     |   | (1,638                           | )
|                                                                                                   |   |                                  |  
|Net cash used in investing activities                                                              | $ | (7,710,172                       | )

See accompanying notes to the condensed interim consolidated
financial statements.

F-9

---

China BAK Battery, Inc. and subsidiariesCondensed
interim consolidated statements of cash flowsFor the six months
ended March 31, 2010 and 2011(continued)(Unaudited) 
  (In US$)

|                                                                   |   | Six
      months ended March 31, |  
|------------------------------------------------------------------ | - | -------------------------------- | -
|                                                                   |   | 2010                             |  
|Cash flow from financing activities                                |   |                                  |  
|                                                                   |   |                                  |  
|Proceeds from borrowings                                           | $ | 141,832,103                      |  
|Repayment of borrowings                                            |   | (138,268,619                     | )
|Decrease  in pledged deposits                                      |   | 13,088,683                       |  
|Proceeds from issuance of capital stock, net                       |   | 19,616,080                       |  
|                                                                   |   |                                  |  
|Net cash provided by / (used in) financing activities              |   | 36,268,247                       |  
|Effect of exchange rate changes on cash
      and cash equivalents |   | (700,926                         | )
|                                                                   |   |                                  |  
|Net increase in cash and cash equivalents                          |   | 8,966,056                        |  
|Cash and cash equivalents at the beginning of period               |   | 30,678,352                       |  
|                                                                   |   |                                  |  
|Cash and cash equivalents at the end of period                     | $ | 39,644,408                       |  
|                                                                   |   |                                  |  
|Supplemental disclosure of cash flow information:                  |   |                                  |  
|                                                                   |   |                                  |  
|Cash received during the period for:                               |   |                                  |  
|Bills receivable
      discounted to banks                         | $ | 585,969                          |  
|                                                                   |   |                                  |  
|Cash paid during the period for:                                   |   |                                  |  
|Income taxes                                                       | $ | 222,339                          |  
|                                                                   |   |                                  |  
|Interest, net of amounts capitalized                               | $ | 3,642,153                        |  

See accompanying notes to the condensed interim consolidated
financial statements.

F-10

---

China BAK Battery, Inc. and subsidiariesNotes to
the condensed interim consolidated financial statementsFor the six
months ended March 31, 2010 and 2011
  (Unaudited)

1.        Principal
Activities, Basis of Presentation and Organization

Principal Activities

China BAK Battery, Inc. (China BAK) is a corporation formed
in the State of Nevada on October 4, 1999 as Medina Copy, Inc. The Company
changed its name to Medina Coffee, Inc. on October 6, 1999 and subsequently
changed its name to China BAK Battery, Inc. on February 14, 2005. China BAK and
its subsidiaries (hereinafter, collectively referred to as the Company) are
principally engaged in the manufacture, commercialization and distribution of a
wide variety of standard and customized lithium ion (known as "Li-ion" or
"Li-ion cell") rechargeable batteries for use in cellular telephones, as well as
various other portable electronic applications, including high-power handset
telephones, laptop computers, power tools, digital cameras, video camcorders,
MP3 players, electric bicycles, hybrid/electric motors, and general industrial
applications.

The shares of the Company traded in the over-the-counter market
through the Over-the-Counter Bulletin Board from 2005 until May 31, 2006, when
the Company obtained approval to list its common stock on The NASDAQ Global
Market, and trading commenced that same date under the symbol "CBAK".

Basis of Presentation and Organization

As of March 31, 2011, the Companys subsidiaries consisted of:
i) BAK International Limited (BAK International), a wholly owned limited
liability company incorporated in Hong Kong on December 29, 2003 as BATCO
International Limited, which changed its name to BAK International Limited on
November 3, 2004; ii) Shenzhen BAK Battery Co., Ltd. (Shenzhen BAK), a wholly
owned limited liability company established on August 3, 2001 in the Peoples
Republic of China (PRC); iii) BAK Electronics (Shenzhen) Co., Ltd. (BAK
Electronics), a wholly owned limited liability company established on August
15, 2005 in the PRC; iv) BAK International (Tianjin) Ltd. (BAK Tianjin), a
wholly owned limited liability company established on December 12, 2006 in the
PRC; v) BAK Battery Canada Ltd. (BAK Canada), a wholly owned limited liability
company established on December 20, 2006 in Canada as BAK Canada Battery Ltd.,
which changed its name to BAK Battery Canada Ltd. on December 22, 2006; vi) BAK
Europe GmbH (BAK Europe), a wholly owned limited liability company established
in Germany on November 28, 2007; vii) BAK Telecom India Private Limited (BAK
India), a wholly owned limited liability company established in India on August
14, 2008; and viii) Tianjin Meicai New Materials Technology Co., Ltd. (Tianjin
Meicai), a wholly owned limited liability company established on February 22,
2011 in the PRC. BAK International beneficially owns 100% of BAK India partly
through a nominee agreement with one of its employees.

BAK Tianjin was established in Tianjin Technology Industrial
District on December 12, 2006 as a wholly owned subsidiary of BAK International
with registered capital of US$99,990,000. Pursuant to BAK Tianjins articles of
association and relevant PRC regulations, BAK International was required to
contribute US$20,000,000 to BAK Tianjin as capital (representing 20% of BAK
Tianjins registered capital) before March 11, 2007. An extension from the
Business Administration Bureau of Beichen District, Tianjin, was obtained to
make this contribution no later than December 11, 2007. On November 16, 2007,
BAK International contributed approximately US$20,000,000 capital to BAK
Tianjin. The remaining US$79,990,000 was originally required to be fully
contributed no later than December 11, 2008 and an extension from the Business
Administration Bureau of Beichen District, Tianjin, was obtained to make this
contribution no later than December 11, 2009. On November 16, 2009, BAK
International contributed approximately US$9,000,000 capital to BAK Tianjin and
as of November 16, 2009, the total contribution from BAK International was
US$29,000,000. The remaining US$70,990,000 was originally required to be fully
contributed no later than December 11, 2009 and an extension from the Business
Administration Bureau of Beichen District, Tianjin, was obtained to make this
contribution no later than December 2012. BAK Tianjin is principally engaged in
the manufacture of larger lithium ion batteries for use in cordless power tools
and various types of vehicles.

F-11

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

1.         Principal
Activities, Basis of Presentation and Organization (continued)

Basis of Presentation and Organization (continued)

On November 6, 2004, BAK International, a non-operating holding
company that had substantially the same shareholders as Shenzhen BAK, entered
into a share swap transaction with the shareholders of Shenzhen BAK for the
purpose of the subsequent reverse acquisition of the Company as described below.
Pursuant to the terms of the share swap transaction, BAK International acquired
all of the outstanding shares of Shenzhen BAK for US$11.5 million in cash, while
the shareholders of Shenzhen BAK acquired substantially all of the outstanding
shares of BAK International for US$11.5 million in cash. As a result, Shenzhen
BAK became a wholly-owned subsidiary of BAK International. After the share swap
transaction was completed, there were 31,225,642 shares of BAK International
stock outstanding, exactly the same as the number of shares of capital stock of
Shenzhen BAK that had been outstanding immediately prior to the share swap, and
the shareholders of BAK International were substantially the same as the
shareholders of Shenzhen BAK prior to the share swap. Consequently, the share
swap transaction between BAK International and the shareholders of Shenzhen BAK
was accounted for as a reverse acquisition of Shenzhen BAK with no adjustment to
the historical basis of the assets and liabilities of Shenzhen BAK.

On January 20, 2005, the Company completed a share swap
transaction with the shareholders of BAK International. The share swap
transaction, also referred to as the reverse acquisition of the Company, was
consummated under Nevada law pursuant to the terms of a Securities Exchange
Agreement entered by and among China BAK, BAK International and the shareholders
of BAK International on January 20, 2005. Pursuant to the Securities Exchange
Agreement, the Company issued 39,826,075 shares of common stock, par value
US$0.001 per share, to the shareholders of BAK International (including
31,225,642 shares to the original shareholders and 8,600,433 shares to new
investors who had purchased shares in the private placement described below),
representing approximately 97.2% of the Companys post-exchange issued and
outstanding common stock, in exchange for 100% of the outstanding capital stock
of BAK International.

The share swap transaction has been accounted for as a
capital-raising transaction of the Company whereby the historical financial
statements and operations of Shenzhen BAK are consolidated using historical
carrying amounts. The 1,152,458 shares of China BAK outstanding prior to the
stock exchange transaction were accounted for at the net book value at the time
of the transaction, which was a deficit of US$1,672.

Also on January 20, 2005, immediately prior to consummating the
share swap transaction, BAK International executed a private placement of its
common stock with unrelated investors whereby it issued an aggregate of
8,600,433 shares of common stock for gross proceeds of US$17,000,000. In
conjunction with this financing, Mr. Xiangqian Li, the Chairman and Chief
Executive Officer of the Company, agreed to place 2,179,550 shares of the
Companys common stock owned by him into an escrow account pursuant to an Escrow
Agreement dated January 20, 2005 (the Escrow Agreement). Pursuant to the
Escrow Agreement, 50% of the escrowed shares were to be released to the
investors in the private placement if audited net income of the Company for the
fiscal year ended September 30, 2005 was not at least US$12,000,000, and the
remaining 50% were to be released to investors in the private placement if
audited net income of the Company for the fiscal year ended September 30, 2006
was not at least US$27,000,000. If the audited net income of the Company for the
fiscal years ended September 30, 2005 and 2006 reached the above-mentioned
targets, the 2,179,550 shares would be released to Mr. Xiangqian Li in the
amount of 50% upon reaching the 2005 target and the remaining 50% upon reaching
the 2006 target.

Under accounting principles generally accepted in the United
States of America (US GAAP), escrow agreements such as the one established by
Mr. Xiangqian Li generally constitute compensation if, following attainment of a
performance threshold, shares are returned to a company officer. The Company
determined that without consideration of the compensation charge, the
performance thresholds for the year ended September 30, 2005 would be achieved.
However, after consideration of a related compensation charge, the Company
determined that such thresholds would not have been achieved. The Company also
determined that, even without consideration of a compensation charge, the
performance thresholds for the year ended September 30, 2006 would not be
achieved. No compensation charge was recorded by the Company for the years ended
September 30, 2005 and 2006.

F-12

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

1.         Principal
Activities, Basis of Presentation and Organization (continued)

Basis of Presentation and Organization (continued)

While the 1,089,775 escrow shares relating to the 2005
performance threshold were previously released to Mr. Xiangqian Li, Mr.
Xiangqian Li executed a further undertaking on August 21, 2006 to return those
shares to the escrow agent for the distribution to the relevant investors.
However, such shares were not returned to the escrow agent, but, pursuant to a
Delivery of Make Good Shares, Settlement and Release Agreement between the
Company, BAK International and Mr. Li entered into on October 22, 2007 (the Li
Settlement Agreement), such shares were ultimately delivered to the Company as
described below. Because the Company failed to satisfy the performance threshold
for the fiscal year ended September 30, 2006, the remaining 1,089,775 escrow
shares relating to the fiscal year 2006 performance threshold were released to
the relevant investors. As Mr. Li has not retained any of the shares placed into
escrow, and as the investors party to the Escrow Agreement are only shareholders
of the Company and do not have and are not expected to have any other
relationship to the Company, the Company has not recorded a compensation charge
for the years ended September 30, 2005 and 2006.

At the time the escrow shares relating to the 2006 performance
threshold were transferred to the investors in fiscal year 2007, the Company
should have recognized a credit to donated shares and a debit to additional
paid-in capital, both of which are elements of shareholders equity. This entry
is not material because total ordinary shares issued and outstanding, total
shareholders equity and total assets do not change; nor is there any impact on
income or earnings per share. Therefore, previously filed consolidated financial
statements for the fiscal year ended September 30, 2007 will not be restated.
This share transfer has been reflected in these financial statements by
reclassifying the balances of certain items as of October 1, 2007. The balances
of donated shares and additional paid-in capital as of October 1, 2007 were
credited and debited by US$7,955,358 respectively.

In November 2007, Mr. Xiangqian Li delivered the 1,089,775
shares related to the 2005 performance threshold to BAK International pursuant
to the Li Settlement Agreement; BAK International in turn delivered the shares
to the Company. Such shares (other than those issued to investors pursuant to
the 2008 Settlement Agreements, as described below) are now held by the Company.
Upon receipt of these shares, the Company and BAK International released all
claims and causes of action against Mr. Xiangqian Li regarding the shares, and
Mr. Xiangqian Li released all claims and causes of action against the Company
and BAK International regarding the shares. Under the terms of the Li Settlement
Agreement, the Company commenced negotiations with the investors who
participated in the Companys January 2005 private placement in order to achieve
a complete settlement of BAK Internationals obligations (and the Companys
obligations to the extent it has any) under the applicable agreements with such
investors.

Beginning on March 13, 2008, the Company has entered into
settlement agreements (the 2008 Settlement Agreements) with certain investors
in the January 2005 private placement.

Pursuant to the 2008 Settlement Agreements, the Company and the
settling investors have agreed, without any admission of liability, to a
settlement and mutual release from all claims relating to the January 2005
private placement, including all claims relating to the escrow shares related to
the 2005 performance threshold that had been placed into escrow by Mr. Xiangqian
Li, as well as all claims, including claims for liquidated damages relating to
registration rights granted in connection with the January 2005 private
placement. Under the 2008 Settlement Agreement, the Company has made settlement
payments to each of the settling investors of the number of shares of the
Companys common stock equivalent to 50% of the number of the escrow shares
related to the 2005 performance threshold these investors had claimed; aggregate
settlement payments as of March 31, 2011 amounted to 368,745 shares. Share
payments to date have been made in reliance upon the exemptions from
registration provided by Section 4(2) and/or other applicable provisions of the
Securities Act of 1933, as amended. In accordance with the 2008 Settlement
Agreements, the Company filed a registration statement covering the resale of
such shares which was declared effective by the SEC on June 26, 2008.

The Companys condensed interim consolidated financial
statements have been prepared in accordance with US GAAP.

F-13

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

1.         Principal
Activities, Basis of Presentation and Organization (continued)

Basis of Presentation and Organization (continued)

The interim results of operations are not necessarily
indicative of the results to be expected for the fiscal year ending September
30, 2011. The Companys consolidated balance sheet as of September 30, 2010 has
been taken from the Companys audited consolidated balance sheet as of that
date. All other financial statements contained herein are unaudited and, in the
opinion of management, contain all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of financial position,
results of operations and cash flows for the periods presented. The Companys
accounting policies and certain other disclosure are set forth in the notes to
the consolidated financial statements contained in the Companys Annual Report
on Form 10-K for the year ended September 30, 2010. These financial statements
should be read in conjunction with the Companys audited consolidated financial
statements and notes thereto.

The preparation of financial statements in conformity with US
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could
differ from those estimates. This basis of accounting differs in certain
material respects from that used for the preparation of the books of account of
the Companys principal subsidiaries, which are prepared in accordance with the
accounting principles and the relevant financial regulations applicable to
enterprises with limited liabilities established in the PRC, Hong Kong, India,
Canada or Germany, the accounting standards used in the places of their
domicile. The accompanying condensed interim consolidated financial statements
reflect necessary adjustments not recorded in the books of account of the
Companys subsidiaries to present them in conformity with US GAAP.

The Company has a working capital deficiency and accumulated
deficit from net losses incurred for each of the three years in the fiscal year
ended September 30, 2010 and for the six months ended March 31, 2011. These
factors may raise doubts about the Companys ability to continue as a going
concern. The interim consolidated financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern. The Company accordingly has developed a strategic plan to
generate a positive cash flow from operating activities for the fiscal year
ending September 30, 2011 (the FY2011 Turnaround Plan). Under the FY2011
Turnaround Plan, the Company will implement cost reductions on both
manufacturing costs and operating expenses to improve profit margins as well as
reduce receivable turnover days through stronger credit controls.

F-14

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

1.         Principal
Activities, Basis of Presentation and Organization (continued)

Recently Issued Accounting Standards

In January 2010, the FASB issued ASU 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements, or ASU 2010-06 that expands the required disclosures about fair
value measurements. This guidance provides for new disclosures requiring the
Company to (i) disclose separately the amounts of significant transfers in and
out of Level 1 and Level 2 fair value measurements and describe the reasons for
the transfers and (ii) present separately information about purchases, sales,
issuances and settlements in the reconciliation of Level 3 fair value
measurements. This guidance also provides clarification of existing disclosures
requiring the Company to (i) determine each class of assets and liabilities
based on the nature and risks of the investments rather than by major security
type and (ii) for each class of assets and liabilities, disclose the valuation
techniques and inputs used to measure fair value for both Level 2 and Level 3
fair value measurements. ASU 2010-06 is effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosures
about purchases, sales, issuances, and settlements in the roll forward of
activity in Level 3 fair value measurements. Those disclosures are effective for
fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. Early application is permitted. The adoption of ASU 2010-06
has no material impact on the Companys financial statements.

In April 2010, the FASB issued ASU 2010-13, Compensation-Stock
Compensation (Topic 718) - Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades - a consensus of the FASB Emerging Issues Task Force, or
ASU 2010-13. ASU 2010-13 provides amendments to Topic 718 to clarify that an
employee share-based payment award with an exercise price denominated in the
currency of a market in which a substantial portion of the entitys equity
securities trades should not be considered to contain a condition that is not a
market, performance, or service condition. Therefore, an entity would not
classify such an award as a liability if it otherwise qualifies as equity. The
amendments in this update do not expand the recurring disclosures required by
Topic 718. Disclosures currently required under Topic 718 are applicable to a
share-based payment award, including the nature and the term of share-based
payment arrangements. The amendments in this update are effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2010. The adoption of ASU 2010-13 has no material impact on the
Companys financial statements.

In April 2010, the FASB issued ASU 2010-17, Revenue
RecognitionMilestone Method (Topic 605)Revenue Recognition, or ASU 2010-17.
ASU 2010-17 provides guidance on defining the milestone and determining when the
use of the milestone method of revenue recognition for research or development
transactions is appropriate. It provides criteria for evaluating if the
milestone is substantive and clarifies that a vendor can recognize consideration
that is contingent upon achievement of a milestone as revenue in the period in
which the milestone is achieved, if the milestone meets all the criteria to be
considered substantive. ASU 2010-17 is effective for us in our first quarter of
fiscal 2012 and should be applied prospectively. Early adoption is permitted.
The Company is currently evaluating the impact of the adoption of ASU 2010-17 on
its financial statements.

In July 2010, the FASB issued ASU 2010-20, Disclosures about
the Credit Quality of Financing Receivables and the Allowance for Credit Losses
(Topic 310)Receivables, or ASU 2010- 20. ASU 2010-20 enhances the disclosure
requirements about the credit quality and related allowance for credit losses of
financing receivables. ASU 2010-20 is effective for interim and annual reporting
periods on or after December 15, 2010. The adoption of ASU 2010-20 has no
material impact on the Companys financial statements.

F-15

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

2         Pledged
Deposits

Pledged deposits as of September 30, 2010 and March 31, 2011
consisted of the following:

| |                                        |   | September 30, |  |   | March 31, | 
| | -------------------------------------- | - | ------------- |  | - | --------- | 
| |                                        |   | 2010          |  |   | 2011      | 
| | Pledged deposits with banks
      for: |   |               |  |   |           | 
| | Construction payable                   | $ | 463,410       |  | $ | 4,211,961 | 
| | Short-term bank loans (Note 7)         |   | 658,508       |  |   | -         | 
| | Bills payable                          |   | 8,303,920     |  |   | 1,670,398 | 
| |                                        | $ | 9,425,838     |  | $ | 5,882,359 | 

Deposits pledged for construction payable are generally
released when the relevant construction projects are completed.

3         Trade
Accounts Receivable, net

Trade accounts receivable as of September 30, 2010 and March
31, 2011 consisted of the following:

| |                                       |   | September 30, |   |   | March 31,   |  
| | ------------------------------------- | - | ------------- | - | - | ----------- | -
| |                                       |   | 2010          |   |   | 2011        |  
| |                                       |   |               |   |   |             |  
| | Trade accounts receivable             | $ | 98,625,901    |   | $ | 104,563,112 |  
| | Less: Allowance for doubtful accounts |   | (23,354,925   | ) |   | (26,349,819 | )
| |                                       |   | 75,270,976    |   |   | 78,213,293  |  
| | Bills receivable                      |   | 10,927,263    |   |   | 13,373,184  |  
| |                                       | $ | 86,198,239    |   | $ | 91,586,477  |  

An analysis of the allowance for doubtful accounts for the six
months ended March 31, 2010 and 2011 is as follows:

| |                                      |   | Six months ended March 31, |  |   |            | 
| | ------------------------------------ | - | -------------------------- |  | - | ---------- | 
| |                                      |   | 2010                       |  |   | 2011       | 
| |                                      |   |                            |  |   |            | 
| | Balance at beginning of
      period | $ | 13,081,331                 |  | $ | 23,354,925 | 
| | Addition of bad debt expense, net    |   | 5,648,694                  |  |   | 2,447,086  | 
| | Foreign exchange adjustment          |   | 2,092                      |  |   | 547,808    | 
| |                                      |   |                            |  |   |            | 
| | Balance at end of period             | $ | 18,732,117                 |  | $ | 26,349,819 | 

F-16

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

4         Inventories

Inventories as of September 30, 2010 and March 31, 2011
consisted of the following:

| |                                          |   | September 30, |   |   | March 31,  |  
| | ---------------------------------------- | - | ------------- | - | - | ---------- | -
| |                                          |   | 2010          |   |   | 2011       |  
| |                                          |   |               |   |   |            |  
| | Raw materials                            | $ | 18,357,473    |   | $ | 21,629,811 |  
| | Work-in-progress                         |   | 6,771,843     |   |   | 11,103,896 |  
| | Finished goods                           |   | 47,458,604    |   |   | 42,048,007 |  
| |                                          |   |               |   |   |            |  
| |                                          |   | 72,587,920    |   |   | 74,781,714 |  
| | Less: Provision for obsolete inventories |   | (8,539,554    | ) |   | (7,984,621 | )
| |                                          |   |               |   |   |            |  
| |                                          | $ | 64,048,366    |   | $ | 66,797,093 |  

Part of the Companys inventories with carrying value of
US$22,417,504 and US$22,905,659 as of September 30, 2010 and March 31, 2011,
respectively, was pledged as collateral under certain loan agreements (see Note
7).

5         Prepayments
and Other Receivables

Prepayments and other receivables as of September 30, 2010 and
March 31, 2011 consisted of the following:

| |                                                |   | September 30, |   |   | March 31, |  
| | ---------------------------------------------- | - | ------------- | - | - | --------- | -
| |                                                |   | 2010          |   |   | 2011      |  
| |                                                |   |               |   |   |           |  
| | Prepayments for raw materials
      and others | $ | 2,198,770     |   | $ | 1,589,888 |  
| | Other receivables                              |   | 3,952,530     |   |   | 2,878,214 |  
| | Less: Allowance for doubtful
      accounts    |   | (638,079      | ) |   | (660,617  | )
| |                                                |   |               |   |   |           |  
| |                                                | $ | 5,513,221     |   | $ | 3,807,485 |  

F-17

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

6         Property,
Plant and Equipment, net

Property, plant and equipment as of September 30, 2010 and
March 31, 2011 consisted of the following:

| |                                                                   |   | September 30, |   |   | March 31,   |  
| | ----------------------------------------------------------------- | - | ------------- | - | - | ----------- | -
| |                                                                   |   | 2010          |   |   | 2011        |  
| | Buildings                                                         | $ | 121,050,663   |   | $ | 124,663,241 |  
| | Machinery and equipment                                           |   | 135,127,265   |   |   | 140,475,044 |  
| | Office equipment                                                  |   | 2,207,168     |   |   | 2,354,595   |  
| | Motor vehicles                                                    |   | 1,416,369     |   |   | 1,447,891   |  
| |                                                                   |   | 259,801,465   |   |   | 268,940,771 |  
| | Accumulated depreciation                                          |   | (61,340,759   | ) |   | (71,350,162 | )
| | Construction in progress                                          |   | 33,791,211    |   |   | 39,364,632  |  
| | Prepayment for acquisition of property, plant
      and equipment |   | 2,550,733     |   |   | 1,391,940   |  
| | Assets held for abandonment                                       |   | 1,043,835     |   |   | 1,063,327   |  
| | Net book value                                                    |   | 235,846,485   |   |   | 239,410,508 |  
| |                                                                   |   |               |   |   |             |  
| | Impairment charge                                                 |   | (6,961,909    | ) |   | (7,113,510  | )
| |                                                                   |   |               |   |   |             |  
| | Carried amount                                                    | $ | 228,884,576   |   | $ | 232,296,998 |  

F-18

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

6         Property,
Plant and Equipment, net (continued)

|(i) | Depreciation expense for the six months ended March
      31, 2010 and 2011 is included in the condensed interim consolidated
      statements of operations and comprehensive loss as
  follows:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                     |   | Six
      months ended March 31, | 
| | ----------------------------------- | - | -------------------------------- | 
| |                                     |   | 2010                             | 
| | Cost of revenues                    | $ | 6,499,739                        | 
| | Research and development expenses   |   | 282,843                          | 
| | Sales and marketing expenses        |   | 195,494                          | 
| | General and administrative expenses |   | 1,019,415                        | 
| |                                     | $ | 7,997,491                        | 

(ii) Construction in Progress

Construction in progress mainly comprises capital expenditures
for construction of the Companys new corporate campus, including offices and
factories.

For the six months ended March 31, 2010 and 2011, the Company
capitalized interest of US$548,798 and US$240,449 respectively to the cost of
construction in progress.

(iii) Pledged Property, Plant and Equipment

As of September 30, 2010 and March 31, 2011, machinery and
equipment with net book value of US$59,735,854 and US$58,763,355 of the Company
were pledged as collateral under certain loan arrangements (see Notes 7 and 8).

(iv) Assets held for abandonment

Assets held for abandonment as of September 30, 2010 and March
31, 2011 consisted of the following:

| |                         |   | September 30, |   |  | March 31, |  
| | ----------------------- | - | ------------- | - |  | --------- | -
| |                         |   | 2010          |   |  | 2011      |  
| | Net book value          | $ | 1,043,835     |   |  | 1,063,327 |  
| | Less: impairment charge |   | (819,874      | ) |  | (846,487  | )
| | Carried amount          | $ | 223,961       |   |  | 216,840   |  

The carried amount as of March 31, 2011 composed of the
machinery and equipment relating to steel-case cell production line and certain
used assets which have been written down to their salvage value of $216,840.

F-19

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

7         Short-term
Bank Loans

The Company obtained several short-term loan facilities from
financial institutions in the PRC. These facilities were secured by the
Companys assets with the following carrying values:

| |                                             |   | September 30, |  |   | March 31,  | 
| | ------------------------------------------- | - | ------------- |  | - | ---------- | 
| |                                             |   | 2010          |  |   | 2010       | 
| | Pledged deposits (Note 2)                   | $ | 658,508       |  | $ | -          | 
| | Inventories (Note 4)                        |   | 22,417,504    |  |   | 22,905,659 | 
| | Machinery and equipment, net
      (Note 6) |   | 31,788,414    |  |   | 26,409,205 | 
| |                                             | $ | 54,864,426    |  | $ | 49,314,864 | 

As of September 30, 2010 and March 31, 2011, the Company had
several short-term bank loans with aggregate outstanding balances of
US$137,418,187 and US$142,447,010, respectively. The loans were primarily
obtained for general working capital, carried interest rates ranging from 4.56%
to 6.39% per annum, and had maturity dates ranging from 3 to 12 months. Each
loan is guaranteed by Mr. Xiangqian Li, who did not receive any compensation for
acting as guarantor.

As of March 31, 2011, the Company had pledged the land use
rights certificate in relation to the land on which Shenzhen BAKs corporate
campus had been constructed for short-term bank loans amounting to US$61,081,758
borrowed from Shenzhen Eastern Branch, Agricultural Bank of China. As of March
31, 2011, the aggregate net book value of the buildings and land use rights in
relation to the land use rights certificate was US$115,951,734.

8         Long-term
  Bank Loans

As of September 30, 2010 and March 31, 2011, the Company had
long-term bank loans of US$41,846,006 and US$30,540,880, respectively. As of
March 31, 2011, US$7,635,220 was borrowed under a four-year long-term loan
credit facility from China Development Bank, bearing interest at the benchmark
rate of the Peoples Bank of China (PBOC) for three-year to five-year
long-term loans, which is currently 5.94% per annum. This long-term bank loan is
repayable on February 28, 2016.

Two other long-term loans totaled an aggregate borrowed amount
of US$7,635,220 as of March 31, 2011. These loans were borrowed under a
five-year long-term loan credit facility from Shenzhen Eastern Branch,
Agricultural Bank of China, and carry interest at 90% of the benchmark rate of
the PBOC for three-year to five-year long-term loans. The first loan of
US$6,108,176 currently carries interest at 5.184% per annum and is repayable on
January 25, 2012. The second loan of US$1,527,044 currently carries annual
interest of 5.184% and is repayable on January 25, 2012. Another loan of
US$15,270,440 as of March 31, 2011 was borrowed under a four-year long-term loan
credit facility from Tianjin Branch, Agricultural Bank of China and carries
interest at the benchmark rate of the PBOC for three-year to five-year long-term
loans, which is currently 5.76% per annum. This loan is repayable in two
installments of US$7,635,220 on December 26, 2011 and US$7,635,220 on May 26,
2012.

F-20

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

8         Long-term
  Bank Loans (continued)

The long-term bank loan with China Development Bank is: (i)
guaranteed by Mr. Xiangqian Li; (ii) secured by certain shares of the Company
owned by Mr. Xiangqian Li; and (iii) to be secured by the property ownership and
land use rights certificate relating to the land on which the Companys Research
and Development Test Centre is to be constructed and the facilities to be
constructed thereon. On April 7, 2010, the pledge of the land use rights
certificate to China Development Bank was approved by the relevant government
bureau. On April 20, 2010, the relevant land use rights certificate was pledged
to China Development Bank.

The long-term bank loan with Shenzhen Eastern Branch,
Agricultural Bank of China is: (i) guaranteed by Mr. Xiangqian Li; (ii) secured
by the Companys machinery and equipment with carrying values of US$30,408,945
as of March 31, 2011 (see Note 6); and (iii) secured by the property ownership
certificate and land use rights certificate in relation to the land on which
Shenzhen BAKs corporate campus had been constructed and any machinery and
equipment purchased and used in the campus subsequent to such construction.

The long-term bank loan with Tianjin Branch, Agricultural Bank
of China is secured by the machinery and equipment purchased for the automated
high-power lithium battery cells production line in Tianjin with carrying values
of US$1,945,205 as of March 31, 2011.

Mr. Xiangqian Li did not receive any compensation for pledging
his shares in the Company or acting as guarantor for the above long-term bank
loans.

The aggregate maturities of long-term bank loans as of March
31, 2011 are as follows:

Fiscal years ending on March 31,2012
    $
    15,270,4402013
    
    7,635,2202014 or after
    
    7,635,220$
    30,540,880


9         Other
Long-term payables

Other long-term payables as of March 31, 2011 include  a government subsidy of approximately US$7,500,000 received for
the companys
automated high-power lithium battery project from the National Development and
Reform Commission and the Ministry of Industry and Information Technology.

F-21

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

10     Share-based Compensation

(i)Options

The Company grants share options to officers and employees and
restricted shares of common stock to its non-employee directors as rewards for
their services.

Stock Option Plan

In May 2005, the Board of Directors adopted the China BAK
Battery, Inc. 2005 Stock Option Plan (the Plan). The Plan originally
authorized the issuance of up to 4,000,000 shares of the Companys common stock,
pursuant to stock options granted under the Plan, or as grants of restricted
stock. The exercise price of options granted pursuant to the Plan must be at
least equal to the fair market value of the Companys common stock at the date
of the grant. Fair market value is determined at the discretion of the
designated committee on the basis of reported sales prices for the Companys
common stock over a ten business day period ending on the grant date. The Plan
will terminate on May 16, 2055. On July 28, 2008, the Companys stockholders
approved certain amendments to the Plan, including an amendment increasing the
total number of shares available for issuance under the Plan to 8,000,000.

Pursuant to the Plan, the Company granted options to purchase
2,000,000 shares of common stock with an exercise price of US$6.25 per share on
May 16, 2005. In accordance with the vesting provisions of the grants, the
options became vested and exercisable under the following schedule:

|                 |  | Percentage of  |  | Initial        
|---------------- |  | -------------- |  | ---------------
|Number of Shares |  | Options Issued |  | Vesting Date   
|800,000          |  | 40%            |  | July 1, 2007   
|600,000          |  | 30%            |  | January 1, 2008
|600,000          |  | 30%            |  | July 1, 2008   
|2,000,000        |  | 100%           |  |                

F-22

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

10     Share-based Compensation (continued)

Subsequent to the grant date, options to purchase 200,000
shares of common stock were forfeited because the optionees terminated their
employment with the Company. In addition, on September 28, 2006, options to
purchase a total of 1,400,000 shares of common stock were cancelled pursuant to
the Termination and Release Agreements signed on that day.

A summary of share option plan activity for these options
during the six months ended March 31, 2011 is presented below:

|                                  |  |           |  |   |                 |  |  | Weighted        |  |   |           | 
|--------------------------------- |  | --------- |  | - | --------------- |  |  | --------------- |  | - | --------- | 
|                                  |  |           |  |   | Weighted        |  |  | average         |  |   |           | 
|                                  |  |           |  |   | average         |  |  | remaining       |  |   | Aggregate | 
|                                  |  | Number of |  |   | exercise price  |  |  | contractual     |  |   | intrinsic | 
|                                  |  | shares    |  |   | per
      share |  |  | term            |  |   | value (1) | 
|Outstanding as of October 1, 2010 |  | 200,000   |  | $ | 6.25            |  |  |                 |  |   |           | 
|Exercised                         |  | -         |  |   | -               |  |  |                 |  |   |           | 
|Forfeited                         |  | -         |  |   | -               |  |  |                 |  |   |           | 
|Cancelled                         |  | -         |  |   | -               |  |  |                 |  |   |           | 
|Outstanding as of March 31, 2011  |  | 200,000   |  | $ | 6.25            |  |  | 0.1 years       |  | $ | -         | 
|Exercisable as of March 31, 2011  |  | 200,000   |  | $ | 6.25            |  |  | 0.1
      years |  | $ | -         | 

(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2011 (US$1.81) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.

The weighted-average grant-date fair value of options granted
during 2005 was US$3.67 per share. No non-cash share-based compensation expense
was recognized in respect of these share options for the six months ended March
31, 2010 and 2011.

The fair value of the above option awards was estimated on the
date of grant using the Black-Scholes Option Valuation Model together with the
following assumptions:

Expected volatility
    59.85%Expected dividends
    NilExpected life
    6 yearsRisk-free interest rate
    4.13%


As of March 31, 2011, there were no unrecognized compensation
costs related to non-vested share options.

Pursuant to the Plan, the Company also granted options to
purchase 1,501,500 shares of the Companys common stock with a weighted-average
exercise price of US$3.28 per share on June 25, 2007. In accordance with the
vesting provisions of the grants, the options will become vested and exercisable
during the period from December 31, 2007 to February 9, 2012 according to each
employees respective agreement.

F-23

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

10     Share-based Compensation (continued)

A summary of share option plan activity for these options
during the six months ended March 31, 2011 is presented below:

|                                  |  | Number of      Shares |  |   | Weighted 
average 
exerciseprice per 
share |  |  | Weighted 
average
remainingcontractua
l term |  |   | Aggregate 
    intrinsic 
    value (1) | 
|--------------------------------- |  | --------------------- |  | - | ------------------------------------------- |  |  | -------------------------------------------- |  | - | --------------------------------------- | 
|Outstanding as of October 1, 2010 |  | 923,500               |  | $ | 3.29                                        |  |  |                                              |  |   |                                         | 
|Exercised                         |  | -                     |  |   | -                                           |  |  |                                              |  |   |                                         | 
|Forfeited                         |  | -                     |  |   | -                                           |  |  |                                              |  |   |                                         | 
|Cancelled                         |  | -                     |  |   | -                                           |  |  |                                              |  |   |                                         | 
|Outstanding as of March 31, 2011  |  | 923,500               |  | $ | 3.29                                        |  |  | 2.4 years                                    |  | $ | -                                       | 
|Exercisable as of March 31, 2011  |  | 665,500               |  | $ | 3.18                                        |  |  | 1.9
      years                              |  | $ | -                                       | 

(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2011 (US$1.81) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.

The weighted-average grant-date fair value of options granted
during 2007 was US$2.15 per share. The Company recorded non-cash share-based
compensation expense of US$114,742 and US$49,224 For the six months ended March
31, 2010 and 2011 respectively, in respect of share options granted on June 25,
2007, which was allocated to cost of revenues, sales and marketing expenses,
general and administrative expenses and research and development expenses
respectively.

The fair value of the above option awards granted on June 25,
2007 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions:

Expected volatility
    69.44%Expected dividends
    NilExpected life
    4 - 10 yearsRisk-free interest rate
    5.09%


As of March 31, 2011, there were unrecognized compensation
costs of US$24,604 related to the above non-vested share options. These costs
are expected to be recognized over a weighted average period of 0.1 year.

Pursuant to the Plan, the Company also granted options to
purchase 360,000 shares of common stock with an exercise price of US$4.30 per
share on January 28, 2008. In accordance with the vesting provisions of the
grants, the options will become vested and exercisable during the period from
April 28, 2008 to January 28, 2011 according to each employees respective
agreement.

F-24

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

10     Share-based Compensation (continued)

A summary of share option plan activity for these options
during the six months ended March 31, 2011 is presented below:

|                                  |  | Number 
    of Shares |  |   | Weighted      average
    exercise 
    price 
    per share |  |  | Weighted
    average    remaining    contractual
    term |  |   | Aggregate 
    intrinsic    value (1) | 
|--------------------------------- |  | --------------------- |  | - | ------------------------------------------------------------ |  |  | --------------------------------------------------------- |  | - | ------------------------------------- | 
|Outstanding as of October 1, 2010 |  | 360,000               |  | $ | 4.30                                                         |  |  |                                                           |  |   |                                       | 
|Exercised                         |  | -                     |  |   | -                                                            |  |  |                                                           |  |   |                                       | 
|Forfeited                         |  | -                     |  |   | -                                                            |  |  |                                                           |  |   |                                       | 
|Cancelled                         |  | -                     |  |   | -                                                            |  |  |                                                           |  |   |                                       | 
|Outstanding as of March 31, 2011  |  | 360,000               |  | $ | 4.30                                                         |  |  | 1.8 years                                                 |  | $ | -                                     | 
|Exercisable as of March 31, 2011  |  | 360,000               |  | $ | 4.30                                                         |  |  | 1.8
      years                                           |  | $ | -                                     | 

(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2011 (US$1.81) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.

The weighted average grant-date fair value of options granted
on January 28, 2008 was US$3.59 per share. The Company recorded non-cash
share-based compensation expense of US$105,291 and US$14,812 for the six months
ended March 31, 2010 and 2011, respectively, in respect of share options granted
on January 28, 2008, which was allocated to general and administrative expenses
and research and development expenses respectively.

The fair value of the above option awards granted on January
28, 2008 was estimated on the date of grant using the Black-Scholes Option
Valuation Model that uses the following assumptions.

Expected volatility
    120.23%Expected dividends
    NilExpected life
    5 yearsRisk-free interest rate
    3.59%


As of March 31, 2011, there were no unrecognized compensation
costs related to non-vested share options.

On May 29, 2008, the Compensation Committee of the Companys
Board of Directors recommended and approved the grant of options to purchase
1,080,000 shares of the Companys common stock to Mr. Xiangqian Li and options
to purchase 170,000 shares to five other employees, with an exercise price of
US$4.18 per share. In accordance with the vesting provisions of the grants, the
options will become vested and exercisable during the period from September 30,
2008 to May 29, 2012 according to each employees respective agreement.

F-25

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

10     Share-based Compensation (continued)

A summary of share option plan activity for these options
during the six months ended March 31, 2011 is presented below:

|                                  |  |           |  |   |                 |  |  | Weighted        |  |   |           | 
|--------------------------------- |  | --------- |  | - | --------------- |  |  | --------------- |  | - | --------- | 
|                                  |  |           |  |   | Weighted        |  |  | average         |  |   |           | 
|                                  |  |           |  |   | average         |  |  | remaining       |  |   | Aggregate | 
|                                  |  | Number of |  |   | exercise price  |  |  | contractual     |  |   | intrinsic | 
|                                  |  | shares    |  |   | per
      share |  |  | term            |  |   | value (1) | 
|Outstanding as of October 1, 2010 |  | 1,250,000 |  | $ | 4.18            |  |  |                 |  |   |           | 
|Exercised                         |  | -         |  |   | -               |  |  |                 |  |   |           | 
|Forfeited                         |  | -         |  |   | -               |  |  |                 |  |   |           | 
|Cancelled                         |  | -         |  |   | -               |  |  |                 |  |   |           | 
|Outstanding as of March 31, 2011  |  | 1,250,000 |  | $ | 4.18            |  |  | 2.1 years       |  | $ | -         | 
|Exercisable as of March 31, 2011  |  | 695,837   |  | $ | 4.18            |  |  | 1.0
      years |  | $ | -         | 

(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2011 (US$1.81) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.

The weighted average grant-date fair value of options granted
on May 29, 2008 was US$2.36 per share. The Company recorded non-cash share-based
compensation expense of US$353,080 and US$121,198 for the six months ended March
31, 2010 and 2011 respectively, in respect of share options granted on May 29,
2008, which was allocated to general and administrative expenses and research
and development expenses respectively.

The fair value of the above option awards granted on May 29,
2008 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions.

Expected volatility
    59.48%Expected dividends
    NilExpected life
    5 yearsRisk-free interest rate
    4.01%


As of March 31, 2011, there were unrecognized compensation
costs of US$51,492 related to the above non-vested share options. These costs
are expected to be recognized over a weighted average period of 0.3 years.

On June 22, 2009, the Compensation Committee of the Companys
Board of Directors recommended and approved the grant of options to purchase
1,928,200 shares of the Companys common stock to certain key employees,
officers and consultants with an exercise price of US$2.81 per share. In
accordance with the vesting provisions of the grants, the options will become
vested and exercisable over five years in twenty equal quarterly installments on
the first day of each fiscal quarter beginning on October 1, 2009.

F-26

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

10     Share-based Compensation (continued)

A summary of share option plan activity for these options
during the six months ended March 31, 2011 is presented below:

|                                  |  | Number 
    of shares |  |   | Weighted 
    average
    exercise 
    price 
    per share |  |  | Weighted 
    average 
    remaining    contractual
    term |  |   | Aggregate
    intrinsic    value (1) | 
|--------------------------------- |  | --------------------- |  | - | ------------------------------------------------------------ |  |  | ------------------------------------------------------------ |  | - | ------------------------------------ | 
|Outstanding as of October 1, 2010 |  | 1,694,355             |  | $ | 2.81                                                         |  |  |                                                              |  |   |                                      | 
|Exercised                         |  | -                     |  |   | -                                                            |  |  |                                                              |  |   |                                      | 
|Forfeited                         |  | 51,000                |  |   | 2.81                                                         |  |  |                                                              |  |   |                                      | 
|Cancelled                         |  | -                     |  |   | -                                                            |  |  |                                                              |  |   |                                      | 
|Outstanding as of March 31, 2011  |  | 1,643,355             |  | $ | 2.81                                                         |  |  | 5.2 years                                                    |  | $ | -                                    | 
|Exercisable as of March 31, 2011  |  | 420,800               |  | $ | 2.81                                                         |  |  | 5.2
      years                                              |  | $ | -                                    | 

(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2011 (US$1.81) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.

The weighted average grant-date fair value of options granted
on June 22, 2009 was US$2.46 per share. The Company recorded non-cash
share-based compensation expense of US$983,568 and of US$519,752 for the six
months ended March 31, 2010 and 2011, respectively, in respect of share options
granted on June 22, 2009, which was allocated to general and administrative
expenses and research and development expenses respectively.

The fair value of the above option awards granted on June 22,
2009 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions.

Expected volatility
    111.03%Expected dividends
    NilExpected life
    7 yearsRisk-free interest rate
    3.69%


As of March 31, 2011, there were unrecognized compensation
costs of US$1,228,678 related to the above non-vested share options. These costs
are expected to be recognized over a weighted average period of 1.9 years.

On June 26, 2009, the Compensation Committee of the Companys
Board of Directors recommended and approved the grant of options to purchase
75,000 shares of the Companys common stock to certain key management with an
exercise price of US$3.24 per share. In accordance with the vesting provisions
of the grants, the options will become vested and exercisable over five years in
twenty equal quarterly installments on the first day of each fiscal quarter
beginning on October 1, 2009.

F-27

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

10     Share-based Compensation (continued)

A summary of share option plan activity for these options
during the six months ended March 31, 2011 is presented below:

|                                  |  | Number 
    of shares |  |   | Weighted
    average
    exercise    price 
    per share |  |  | Weighted 
    average 
    remaining    contractual
    term |  |   | Aggregate 
    intrinsic    value (1) | 
|--------------------------------- |  | --------------------- |  | - | --------------------------------------------------------- |  |  | ------------------------------------------------------------ |  | - | ------------------------------------- | 
|Outstanding as of October 1, 2010 |  | 75,000                |  | $ | 3.24                                                      |  |  |                                                              |  |   |                                       | 
|Exercised                         |  | -                     |  |   | -                                                         |  |  |                                                              |  |   |                                       | 
|Forfeited                         |  | -                     |  |   | -                                                         |  |  |                                                              |  |   |                                       | 
|Cancelled                         |  | -                     |  |   | -                                                         |  |  |                                                              |  |   |                                       | 
|Outstanding as of March 31, 2011  |  | 75,000                |  | $ | 3.24                                                      |  |  | 5.2 years                                                    |  | $ | -                                     | 
|Exercisable as of March 31, 2011  |  | 18,750                |  | $ | 3.24                                                      |  |  | 5.2
      years                                              |  | $ | -                                     | 

(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2011 (US$1.81) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.

The weighted average grant-date fair value of options granted
on June 26, 2009 was US$2.86 per share. The Company recorded non-cash
share-based compensation expense of US$48,884 and US$25,716 for the six months
ended March 31, 2010 and 2011, respectively, in respect of share options granted
on June 26, 2009, which was allocated to research and development expenses.

The fair value of the above option awards granted on June 26,
2009 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions.

Expected volatility
    113.58%Expected dividends
    NilExpected life
    7 yearsRisk-free interest rate
    3.51%


As of March 31, 2011, there were unrecognized compensation
costs of US$66,332 related to the above non-vested share options. These costs
are expected to be recognized over a weighted average period of 1.7 years.

On March 11, 2010, the Compensation Committee of the Companys
Board of Directors recommended and approved the grant of options to purchase
50,000 shares of the Companys common stock to certain key management with an
exercise price of US$2.58 per share. In accordance with the vesting provisions
of the grants, the options will become vested and exercisable over two years in
two equal installments beginning on each anniversary of the grant day on March
11, 2010.

F-28

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

10     Share-based Compensation (continued)

A summary of share option plan activity for these options
during the six months ended March 31, 2011 is presented below:

|                                  |  | Number 
    of shares |  |   | Weighted
      average 
exerciseprice
per share |  |  | Weighted 
    average 
    remaining 
    contractual
    term |  |   | Aggregate
    intrinsic 
    value (1) | 
|--------------------------------- |  | --------------------- |  | - | ----------------------------------------------- |  |  | -------------------------------------------------------------- |  | - | -------------------------------------- | 
|Outstanding as of October 1, 2010 |  | 50,000                |  | $ | 2.58                                            |  |  |                                                                |  |   |                                        | 
|Exercised                         |  | -                     |  |   | -                                               |  |  |                                                                |  |   |                                        | 
|Forfeited                         |  | 50,000                |  |   | 2.58                                            |  |  |                                                                |  |   |                                        | 
|Cancelled                         |  | -                     |  |   | -                                               |  |  |                                                                |  |   |                                        | 
|Outstanding as of March 31, 2011  |  | -                     |  | $ | -                                               |  |  | -                                                              |  | $ | -                                      | 
|Exercisable as of March 31, 2011  |  | -                     |  | $ | -                                               |  |  | -                                                              |  | $ | -                                      | 

(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2011 (US$1.81) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.

The weighted average grant-date fair value of options granted
on March 11, 2010 was US$1.51 per share. The Company recorded non-cash
share-based compensation expense of US$3,100 for the six months ended March 31,
2010 in respect of share options granted on March 11, 2010 and no non-cash
share-based compensation expense was recognized in respect of these share
options for the six months ended March 31, 2011.

The fair value of the above option awards granted on March 11,
2010 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions.

Expected volatility
    76.32%Expected dividends
    NilExpected life
    4 yearsRisk-free interest rate
    3.72%


As of March 31, 2011, there were no unrecognized compensation
costs related to non-vested share options.

On April 8, 2010, the Compensation Committee of the Companys
Board of Directors recommended and approved the grant of options to purchase
100,000 shares of the Companys common stock to certain key management with an
exercise price of US$2.43 per share. In accordance with the vesting provisions
of the grants, the options will become vested and exercisable in eight equal
installments beginning on each quarter after September 30, 2010.

F-29

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

10     Share-based Compensation (continued)

A summary of share option plan activity for these options
during the six months ended March 31, 2011 is presented below:

|                                  |  | Number 
    of shares |  |   | Weighted 
    average
    exercise 
    price 
    per share |  |  | Weighted 
    average
    remaining    contractual
    term |  |   | Aggregate
    intrinsic 
    value (1) | 
|--------------------------------- |  | --------------------- |  | - | ------------------------------------------------------------ |  |  | ----------------------------------------------------------- |  | - | -------------------------------------- | 
|Outstanding as of October 1, 2010 |  | 100,000               |  | $ | 2.43                                                         |  |  |                                                             |  |   |                                        | 
|Exercised                         |  | -                     |  |   | -                                                            |  |  |                                                             |  |   |                                        | 
|Forfeited                         |  | -                     |  |   | -                                                            |  |  |                                                             |  |   |                                        | 
|Cancelled                         |  | -                     |  |   | -                                                            |  |  |                                                             |  |   |                                        | 
|Outstanding as of March 31, 2011  |  | 100,000               |  | $ | 2.43                                                         |  |  | 6.4 years                                                   |  | $ | -                                      | 
|Exercisable as of March 31, 2011  |  | 25,000                |  | $ | 2.43                                                         |  |  | 6.4
      years                                             |  | $ | -                                      | 

(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2011 (US$1.81) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.

The weighted average grant-date fair value of options granted
on April 8, 2010 was US$1.41 per share. The Company recorded non-cash
share-based compensation expense of US$26,926 for the six months ended March 31,
2011 in respect of share options granted on April 8, 2010 which was allocated to
research and development expense.

The fair value of the above option awards granted on April 8,
2010 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions.

Expected volatility
    51.79%Expected dividends
    NilExpected life
    7.5 yearsRisk-free interest rate
    3.90%


As of March 31, 2011, there were unrecognized compensation
costs of US$65,064 related to the above non-vested share options. These costs
are expected to be recognized over a weighted average period of 2.2 years.

On July 23, 2010, the Compensation Committee of the Companys
Board of Directors recommended and approved the grant of options to purchase
80,000 shares of the Companys common stock to certain key management with an
exercise price of US$1.58 per share. In accordance with the vesting provisions
of the grants, the options will become vested and exercisable in eight equal
installments beginning on each quarter after September 30, 2010.

F-30

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

10     Share-based Compensation (continued)

A summary of share option plan activity for these options
during the six months ended March 31, 2011 is presented below:

|                                  |  | Number 
    of shares |  |   | Weighted
    average 
    exercise 
    price 
    per share |  |  | Weighted 
    average 
    remaining 
    contractual
    term |  |   | Aggregate
    intrinsic    value (1) | 
|--------------------------------- |  | --------------------- |  | - | ------------------------------------------------------------ |  |  | -------------------------------------------------------------- |  | - | ------------------------------------ | 
|                                  |  |                       |  |   |                                                              |  |  |                                                                |  |   |                                      | 
|Outstanding as of October 1, 2010 |  | 80,000                |  | $ | 1.58                                                         |  |  |                                                                |  |   |                                      | 
|Exercised                         |  | -                     |  |   | -                                                            |  |  |                                                                |  |   |                                      | 
|Forfeited                         |  | 80,000                |  |   | 1.58                                                         |  |  |                                                                |  |   |                                      | 
|Cancelled                         |  | -                     |  |   | -                                                            |  |  |                                                                |  |   |                                      | 
|Outstanding as of March 31, 2011  |  | -                     |  | $ | -                                                            |  |  | -                                                              |  | $ | -                                    | 
|Exercisable as of March 31, 2011  |  | -                     |  | $ | -                                                            |  |  | -                                                              |  | $ | -                                    | 

(1) Aggregate intrinsic value represents the value of the
Companys closing stock price on March 31, 2011 (US$1.81) in excess of the
exercise price multiplied by the number of options outstanding or exercisable.

The weighted average grant-date fair value of options granted
on July 23, 2010 was US$1.58 per share. No non-cash share-based compensation
expense was recognized in respect of these share options for the six months
ended March 31, 2011, in respect of share options granted on July 23, 2010.

The fair value of the above option awards granted on July 23,
2010 was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions.

Expected volatility
    58.50%Expected dividends
    NilExpected life
    5.0 yearsRisk-free interest rate
    2.99%


As of March 31, 2011, there were no unrecognized compensation
costs related to non-vested share options.

(ii)Restricted Shares

Pursuant to the Plan and in accordance with the China BAK
Battery, Inc. Compensation Plan for Non-Employee Directors, the Company granted
5,000 restricted shares to each of the existing elected independent directors
with a fair value of US$1.68 per share on July 1, 2010. The eligible directors
shall vest in their rights under the restricted shares according to the
following schedule:

|(i)  | 25% of the restricted shares granted will immediately
      vest on the grant date; and                                                                                                                                                                                                                                           
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                   
|(ii) | The remaining 75% of the restricted shares will vest in
      three equal quarterly installments on the last day of each subsequent
      quarter or in three equal quarterly installments on the last day of each
      calendar quarter beginning on the last day of the first full calendar
      quarter after the grant date.

The Company recorded non-cash share-based compensation expense
of US$6,854 for the six months ended March 31, 2011, in respect of the
restricted shares granted in July 1, 2010, which was allocated to general and
administrative expenses.

The first and second 25% of the restricted shares were already
issued as fully paid shares of common stock to the Companys three independent
directors on August 4, 2010 and October 6, 2010. According to the resolution of
Compensation Committee on December 28, 2010, the third and forth 25% of the
restricted shares were cancelled. As of March 31, 2011, there were no
unrecognized compensation costs associated with these restricted shares granted
to non-employee directors.

F-31

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

10     Share-based Compensation (continued)

Pursuant to the Plan, the Compensation Committee of the
Companys Board of Directors recommended and approved the grant of 500,000
restricted shares to Chief Executive Officer, Mr. Xiangqian Li with a fair value
of US$2.81 per share on June 22, 2009. In accordance with the vesting schedule
of the grant, the restricted shares will vest in twenty equal quarterly
installments on the first day of each fiscal quarter beginning on October 1,
2009.

The Company recorded non-cash share-based compensation expense
of US$322,424 and of US$169,853 for the six months ended March 31, 2010 and 2011
respectively in respect of the restricted shares granted on June 22, 2009, which
was allocated to general and administrative expenses.

As of March 31, 2011, there were unrecognized stock-based
compensation costs of US$421,257 associated with these restricted shares granted
to Mr. Xiangqian Li. These costs are expected to be recognized over a
weighted-average period of 2.9 years.

As the Company itself is an investment holding company which is
not expected to generate operating profits to realize the tax benefits arising
from its net operating loss carried forward, no income tax benefits were
recognized for such stock-based compensation cost under the Stock Option Plan
for the six months ended March 31, 2010 and 2011.

F-32

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

11     Net Loss per Share

The calculation of basic net loss per share is based on the net
loss for the six months ended March 31, 2011 attributable to equity shareholders
of $7,741,352 (six months ended March 31, 2010: $5,942,138) and the
weighted average number of shares of common stock of 62,895,122 issued and
outstanding during the six months ended March 31, 2011 (six months ended March
31, 2010: 61,984,941).

The effects of 4,488,655 shares of stock options, 503,750
shares of restricted stock and 1,447,500 warrants outstanding during the six
months ended or as of March 31, 2010 were all anti-dilutive and the effects of
4,551,855 shares of stock options, 500,000 shares of restricted stock and
1,447,500 warrants outstanding during the six months ended or as of March 31,
2011 were all anti-dilutive. As such, basic and diluted net loss per share for
the six months ended March 31, 2010 and 2011 are the same.

12     Fair Value of Financial Instruments

The fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between willing
parties. The carrying amounts of financial assets and liabilities, such as cash
and cash equivalents, pledged deposits, trade accounts receivable, other
receivables, short-term bank loans, long-term bank loans, accounts and bills
payable and other payables, approximate their fair values because of the short
maturity of these instruments and market rates of interest.

F-33

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

13     Commitments and
Contingencies

(i) Capital Commitments

As of September 30, 2010 and March 31, 2011, the Company had
the following contracted capital commitments:

September 30,
    
    
    March 31,2010
    
    
    2011For construction of buildings
    $
    1,784,549
    
    $
    1,296,035For purchases of equipment
    
    4,166,911
    
    
    4,131,215$
    5,951,460
    
    $
    5,427,250


(ii) Land Use Rights and Property Ownership Certificate

According to the relevant PRC laws and regulations, a land use
rights certificate, along with government approvals for land planning, project
planning and construction, needs to be obtained before construction of a
building is commenced. A property ownership certificate shall be granted by the
government upon application under the condition that the aforementioned
certificate and government approvals have been obtained.

The Company did not obtain the land use right certificate and
approvals for project-planning and construction relating to the premises
occupied by the Company, BAK Industrial Park, before construction of the
buildings was commenced. On July 3, 2009, the Company had obtained the approval
for project-planning and construction from the local government of Shenzhen. As
of March 31, 2011, the Company has obtained the aforementioned land use rights
certificate and government approvals and was in the process of negotiating with
the relevant government for the application and acquisition of the appropriate
property ownership certificate.

Management believes that the Company will ultimately be granted
a property ownership certificate, and that there should be no legal barriers for
the Company to obtain a property ownership certificate for the premises
presently occupied by the Company in BAK Industrial Park. However, in the event
that the Company fails to obtain the property ownership certificate relating to
BAK Industrial Park, there is a risk that the building constructed will need to
be vacated as illegitimate constructions and the Company might be subject to
penalties and fines. However, management believes that this possibility, while
present, is remote.

F-34

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

13     Commitments and Contingencies
(continued)

(ii) Land Use Rights and Property Ownership Certificate
(continued)

Pursuant to the land use rights certificate relating to the
Companys Tianjin facility, the Tianjin government had requested that the
Company complete the construction of the Tianjin facility before September 30,
2008. As of March 31, 2011, the Company was in the process of negotiating with
the relevant government bureau for the extension of the completion date. If the
Company fails to obtain the approval for the extension of the completion date
from the relevant government bureau, there is a risk that the land use rights
certificate relating to the Companys Tianjin facility will become invalid.
However, management believes that this possibility, while present, is remote.

Pursuant to the land use rights certificate that the Company
obtained relating to the Research and Development Test Centre to be constructed
in Shenzhen, the Company must complete at least 25% of the construction of the
Research and Development Test Centre by September 30, 2008. On November 11, 2008
and May 27, 2009, the Company has signed two supplement agreements with Shenzhen
government to increase the dimensions of the Research and Development Test
Centre. According to the supplement agreements, the Company is required to
complete the construction by May 6, 2011. According to the property ownership
and land use rights certificate, such rights may not be pledged without the
approval of the relevant government office. The Company is required to pledge
its property ownership and land use rights certificate in relation to the
Research and Development Test Centre to China Development Bank according to the
loan agreement entered into with it. On April 7, 2010, the pledge of the land
use rights certificate to China Development Bank was approved by the relevant
government bureau. On April 20, 2010, the relevant land use rights certificate
was pledged to China Development Bank.

On December 15, 2008, the Company purchased insurance for its
manufacturing facilities at BAK Industrial Park in Shenzhen, China. Under the
insurance policy entered into with Ping An Property & Casualty Insurance
Company of China, Ltd, the insured amount for our manufacturing facilities at
BAK Industrial Park is RMB585,373,070 (approximately $85.8 million) for the
period from November 26, 2008 to August 25, 2010. On August 20, 2010, the
Company purchased the new insurance for its manufacturing facilities at BAK
Industrial Park in Shenzhen, China. Under the new insurance policy entered into
with Ping An Property & Casualty Insurance Company of China, Ltd, the
insured amount for our manufacturing facilities at BAK Industrial Park is
RMB550,000,000 (approximately $82.2 million) for the period from August 26, 2010
to March 26, 2012.

On July 2, 2010, the Company purchased insurance for its
manufacturing facilities in Tianjin, China. Under the insurance policy entered
into with Ping An Property & Casualty Insurance Company of China, Ltd, the
insured amount for our manufacturing facilities in Tianjin is RMB220,991,420
(approximately $33.0 million) for the period from July 2, 2010 to July 2, 2011.

The Company is not able to insure its new Research and
Development Test Centre to be constructed in Shenzhen, China, until it receives
the required property ownership and land use rights certificates. Upon receipt
of such certificates, the Company intends to procure such insurance. As
discussed above, the Company has obtained the land use rights certificate to the
land relating to these facilities. The application for a property ownership
certificate is in process with respect to the Companys facilities in Shenzhen.

F-35

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

13     Commitments and Contingencies
(continued)

(iii) Guarantees

In order to secure the supplies of certain raw materials and
equipment and upon the request of suppliers, the Company has given guarantees to
certain suppliers which are summarized as follows:

|                                                                                               |   | September 30, |  |   | March 31,  | 
|---------------------------------------------------------------------------------------------- | - | ------------- |  | - | ---------- | 
|                                                                                               |   | 2010          |  |   | 2011       | 
|                                                                                               |   |               |  |   |            | 
|Guaranteed for Shenzhen
      Tongli Hi-tech Co. Ltd. - a non-related party                    | $ | 2,241,750     |  | $ | 2,290,566  | 
|Guaranteed for Hunan Reshine New Material
      Ltd. - a non-related party                     |   | 5,978,001     |  |   | 6,108,176  | 
|Guaranteed for Nanjing
      Special Metal Equipment Co. Ltd. - a non-related party            |   | 14,197,752    |  |   | 11,452,830 | 
|                                                                                               |   |               |  |   |            | 
|Guaranteed for Siping Juyuan
      Hanyang Plate Heat Exchanger Co. Ltd. - a non-related party |   | 2,989,000     |  |   | 3,054,088  | 
|                                                                                               |   |               |  |   |            | 
|Guaranteed for Shanghai
      Global Children Products Co. Ltd. a non-related party           |   | 747,250       |  |   | 763,522    | 
|                                                                                               |   |               |  |   |            | 
|Guaranteed for Beijing
      Triolion Technology Co. Ltd.  a non-related party                |   | 597,800       |  |   | -          | 
|                                                                                               |   |               |  |   |            | 
|Guaranteed for Tianjin Bike
      New Energy Research Institute - a non-related party          |   | -             |  |   | 7,635,220  | 
|                                                                                               |   |               |  |   |            | 
|Guaranteed for Shenzhen Yasu
      Technology Co. Ltd. - a non-related party                   |   | 4,483,501     |  |   | 4,581,132  | 
|                                                                                               |   |               |  |   |            | 
|Guaranteed for Shenzhen
      B&G Technology Development Co. Ltd. - a non-related party        |   | 8,967,001     |  |   | 9,162,264  | 
|                                                                                               |   |               |  |   |            | 
|                                                                                               | $ | 40,202,055    |  | $ | 45,047,798 | 

Management has assessed the fair value of the obligation
arising from the above financial guarantees and considered it immaterial to the
condensed interim consolidated financial statements. Therefore, no obligations
in respect of the above guarantees were recognized as of March 31, 2011.

(iv) Outstanding Discounted Bills and Transferred Bills

From time to time, the Company factors bills receivable to
banks and endorses the bank acceptance bills received to its suppliers, vendors
or other parties for settlement of its liabilities to these creditors. At the
time of the factoring and transfer, all rights and privileges of holding the
receivables are transferred to the banks and the creditors. The Company removes
the assets from its books and records a corresponding expense for the amount of
the discount. The Company remains contingently liable on the amount outstanding
in the event the bill issuer defaults.

The Companys outstanding discounted and transferred bills as
of September 30, 2010 and March 31, 2011 are summarized as follows:

September 30,
    
    
    March 31,2010
    
    
    2011Bank acceptance bills
    $
    21,464,186
    
    $
    10,809,913


F-36

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

14     Significant Concentrations

(a) Customers and Credit Concentrations

No customer individually comprised 10% or more of net revenue
for the six months ended March 31, 2010 and 2011.

(b) Credit Risk

Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist primarily of cash and cash
equivalents and pledged deposits. As of September 30, 2010 and March 31, 2011,
substantially all of the Companys cash and cash equivalents and pledged
deposits were held by major financial institutions located in the PRC, which
management believes are of high credit quality.

F-37

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

15     Segment Information

The Company currently engages in the manufacture,
commercialization and distribution of a wide variety of standard and customized
lithium ion rechargeable batteries for use in a wide array of applications.
During the six months ended March 31, 2011, the Company manufactured five types
of Li-ion rechargeable batteries: aluminum-case cell, battery pack, cylindrical
cell, lithium polymer cell and high-power lithium battery cell. The Companys
products are sold to packing plants operated by third parties primarily for use
in mobile phones and other electronic devices. Net revenues for the six months
ended March 31, 2010 and 2011 were as follows:

Net revenues by product:

|                                 |   | Six
      months ended March 31, | 
|-------------------------------- | - | -------------------------------- | 
|                                 |   | 2010                             | 
|                                 |   |                                  | 
|Aluminum-case cell               | $ | 52,443,541                       | 
|Battery pack                     |   | 21,305,633                       | 
|Cylindrical cells                |   | 21,499,654                       | 
|Lithium polymer cells            |   | 4,886,728                        | 
|High-power lithium battery cells |   | 515,711                          | 
|                                 | $ | 100,651,267                      | 

Net revenues by geographic area:

|                 |   | Six
      months ended March 31, | 
|---------------- | - | -------------------------------- | 
|                 |   | 2010                             | 
|                 |   |                                  | 
|PRC Mainland     | $ | 69,032,783                       | 
|PRC Taiwan       |   | 15,045,833                       | 
|India            |   | 2,524,113                        | 
|Europe           |   | 287,610                          | 
|Hong Kong, China |   | 12,548,381                       | 
|Others           |   | 1,212,547                        | 
|                 | $ | 100,651,267                      | 

Substantially all of the Companys long-lived assets are
located in the PRC.

F-38

---

China BAK Battery, Inc. and subsidiariesNotes to the condensed interim consolidated financial statementsFor the six months ended March 31, 2010 and 2011
  (Unaudited)

16     Subsequent Events

The Company evaluated  all events or transactions that  occurred after March 31, 2011  through the date these financial  statements were issued and has  determined that there is no material
recognizable nor subsequent events or transactions which would require
recognition or disclosure in the financial statements.

F-39

---

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------------

Special Note Regarding Forward Looking Statements

Statements contained in this Report include forward-looking
statements within the meaning of such term in Section 27A of the Securities Act
of 1933, as amended, or the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking
statements involve known and unknown risks, uncertainties and other factors
which could cause actual financial or operating results, performances or
achievements expressed or implied by such forward-looking statements not to
occur or be realized. Forward-looking statements made in this Report generally
are based on our best estimates of future results, performances or achievements,
predicated upon current conditions and the most recent results of the companies
involved and their respective industries. Forward-looking statements may be
identified by the use of forward-looking terminology such as may, will,
could, should, project, expect, believe, estimate, anticipate,
intend, continue, potential, opportunity or similar terms, variations of
those terms or the negative of those terms or other variations of those terms or
comparable words or expressions. Potential risks and uncertainties include,
among other things, such factors as:

- our ability to continue as a going concern;
- our anticipated growth strategies and our ability to manage the expansion
  of our business operations effectively;
- our future business development, results of operations and financial
  condition;
- our ability to fund our operations and manage our substantial short-term
  indebtedness;
- our ability to maintain or increase our market share in the competitive
  markets in which we do business;
- our ability to keep up with rapidly changing technologies and evolving
  industry standards, including our ability to achieve technological advances;
- our dependence on the growth in demand for the portable electronic devices
  that are powered by our products;
- our ability to diversify our product offerings and capture new market
  opportunities;
- our ability to obtain original equipment manufacturer, or OEM,
  qualifications from brand names;
- our ability to source our needs for skilled labor, machinery and raw
  materials economically;
- our ability to secure raw materials in the future and to manage the costs
  of raw materials or to secure alternative or substitute raw materials;
- our ability to maintain low costs without damaging our competitive
  position;
- uncertainties with respect to the PRC legal and regulatory environment;
- our ability to remediate any material weaknesses in our internal control
  over financial reporting;
- our ability to obtain property ownership rights to our facilities; and
- other risks identified in this Report and in our other reports filed with
  the U.S. Securities and Exchange Commission, or SEC.

Additional disclosures regarding factors that could cause our
results and performance to differ from results or performance anticipated by
this Report are discussed in other reports that we file with the SEC, including
without limitation our Annual Report on Form 10-K for the fiscal year ended
September 30, 2010, or the 2010 Form 10-K. 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 to provide updates, revisions or
amendments to any forward-looking statements to reflect changes in our
expectations or future events.

1

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Use of Terms

Except as otherwise indicated by the context, all references in
this Report to: we, us, our and the Company are to the combined business
of China BAK Battery, Inc. and its consolidated subsidiaries. Unless the context
requires otherwise, all references to:

- BAK Canada are to our Canadian subsidiary, BAK Battery Canada Ltd.;
- BAK Electronics are to our PRC subsidiary, BAK Electronics (Shenzhen)
  Co., Ltd.;
- BAK Europe are to our German subsidiary, BAK Europe GmbH;
- BAK India are to our Indian subsidiary, BAK Telecom India Private
  Limited;
- BAK International are to our Hong Kong subsidiary, BAK International
  Limited;
- BAK Tianjin are to our PRC subsidiary, BAK International (Tianjin) Ltd.;
- China, Chinese and PRC are to the Peoples Republic of China,
  excluding for the purposes of this Report only, Taiwan, Hong Kong and Macau;
- Exchange Act are to the Securities Exchange Act of 1934, as amended;
- RMB are to Renminbi, the legal currency of China; and
- Securities Act are to the Securities Act of 1933, as amended;
- Shenzhen BAK refers to our PRC subsidiary, Shenzhen BAK Battery Co.,
  Ltd.;
- Tianjin Meicai refers to our PRC subsidiary, Tianjin Meicai New Materials
  Technology Co., Ltd.;
- U.S. dollar, $ and US$ are to the legal currency of the United States
  of America.

Overview

We are a leading global manufacturer of lithium based battery
cells. We produce battery cells that are the principal component of rechargeable
batteries commonly used to power the following applications:

- cellular phones and smart phonescustomer categories include OEM customers
  and replacement battery manufacturers;
- notebook computers;
- portable consumer electronics, such as digital cameras, portable media
  players, portable gaming devices, personal digital assistants, or PDAs,
  camcorders, digital cameras, and Bluetooth headsets; and
- light electric vehicles, hybrid electric vehicles, electric vehicles,
  cordless power tools, and uninterruptible power supplies, or UPS.

We conduct all of our operations in China, in close proximity
to Chinas electronics manufacturing base and its rapidly growing market.
Historically, we have primarily manufactured prismatic lithium-ion cells for the
cellular phone replacement battery market and the OEM market. Our products are
packed into batteries by third-party battery pack manufacturers in accordance
with the specifications of manufacturers of portable electronic applications. At
the request of our customers that order prismatic battery packs, we also engage
battery pack manufacturers to assemble our prismatic cells into batteries for a
fee and then sell battery packs to these customers both for the replacement and
OEM markets.

2

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As we expand our production capacity and add other lithium-ion
battery cell product lines in response to evolving market demands, we have
derived and will continue to derive an increasing portion of our revenues from
our other product lines.

Second Fiscal Quarter Financial Performance Highlights

During the second quarter of fiscal year 2011, we generated
$46.7 million in net revenues, down 26.5% from $63.5 million last quarter and
down 7.9% from $50.4 million for the same quarter in fiscal year 2010.

Gross profit for the second quarter of fiscal year 2011 was
$4.4 million, down 55.5% from $10.0 million last quarter and down 50.6% from
$9.0 million in the same quarter of last year. Gross margin was 9.5%, compared
with 15.7% last quarter and 17.9% in the year ago period. The decline in gross
profit was mainly attributable to a decline in sales volume and the selling
price of prismatic cells as a result of traditional seasonality and intense
market price competition. In addition, the decline in selling price of
cylindrical cells also caused the decline in gross profit.

We had access to $235.5 millionin short-term credit
facilities and $45.8 millionin long-term credit facilities as of March
31, 2011. As of March 31, 2011, the principal outstanding amounts included
short-term bank loans of $142.4 million, long-term bank loans of $15.3
millionmaturing within one year, long-term bank loans of $15.3
millionmaturing in over one year, and bills payable of $46.1 million,
leaving $72.7 millionof short-term funds available for additional cash
needs. In addition, on July 10, 2008, our $60.0 million shelf registration
statement was declared effective by the SEC, pursuant to which we have raised
$36.6 million in gross revenue from common stock purchases and issued common
stock warrants exercisable for up to $21.6 million in additional gross proceeds.
As $16.0 million of these warrants were not exercised before their expiration,
we may raise up to an additional $17.8 million in gross proceeds from future
equity financings under this shelf registration statement.

Financial Statement Presentation

Net revenues. Our net revenues represent the
invoice value of our products sold, net of value added taxes, or VAT, sales
returns, trade discounts and allowances. We are subject to VAT, which is levied
on most of our products at the rate of 17% on the invoice value of our products.
Provision for sales returns are recorded as a reduction of revenue in the same
period that revenue is recognized. The provision for sales returns represents
our best estimate of the amount of goods that will be returned from our
customers based on historical sales returns data.

Cost of Revenues. Cost of revenues consists
primarily of material costs, employee remuneration for staff engaged in
production activity, equity-based compensation, depreciation and related
expenses that are directly attributable to the production of products. Cost of
revenues also includes write-downs of inventory to lower of cost or market. Cost
of revenues from the sales of battery packs includes the fees we pay to pack
manufacturers for assembling our prismatic cells into battery packs.

Research and Development Expenses. Research and
development expenses are primarily comprised of remuneration for R&D staff,
equity-based compensation, depreciation and maintenance expenses relating to
R&D equipment, and R&D material costs.

Sales and Marketing Expenses. Sales and
marketing expenses consist primarily of remuneration for staff involved in
selling and marketing efforts, including staff engaged in the packaging of goods
for shipment, advertising cost, depreciation, equity-based compensation and
travel and entertainment expenses. We do not pay slotting fees to retail
companies for displaying our products, engage in cooperative advertising
programs, participate in buy-down programs or similar arrangements. No material
estimates are required by management to determine our actual marketing or
advertising costs for any period.

General and Administrative Expenses. General and
administrative expenses consist primarily of employee remuneration, equity-based
compensation, professional fees, insurance, benefits, general office expenses,
depreciation, liquidated damages, and bad debt expenses.

Fixed Assets Impairment Charges. Impairment
charges consist primarily of impairment losses for long-lived assets. These
losses reflect the amounts by which the carrying values of these assets exceed
their estimated fair value as determined by their estimated future discounted
cash flows.

Finance Costs, Net. Finance costs consist
primarily of interest income, interest on bank loans, net of capitalized
interest, and bank charges.

3

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Government Grant Income / Other Income and
Expenses. Income from government grants consist primarily of grant funds
awarded to Shenzhen BAK as consideration for its contributions to the Shenzhen
areas economy and as subsidies for land-use rights at BAK Industrial Park. Our
Tianjin subsidiary also received a government grant for its R&D and
production work on electric vehicles. No present or future obligations arise
from the receipt of these funds. No present or future obligations arise from the
receipt of these funds.

Income Taxes. Under PRC income tax laws and
regulations, before January 1, 2008, a foreign-invested enterprise, or FIE, was
generally subject to an enterprise income tax rate of 33.0%, which included a
30.0% state income tax and a 3.0% local income tax. However, from at least
calendar year 2002 through calendar year 2007, an enterprise recognized as a
Manufacturing Enterprise Located in Special Economic Zone under PRC tax laws
was entitled to a preferential income tax rate of 15%. Moreover, a
foreign-invested manufacturing enterprise, starting from its first profitable
calendar year after offset of accumulated tax losses, was entitled to a two-year
exemption from enterprise income tax followed by a three-year 50% reduction in
its enterprise income tax rate, also referred to herein as the tax holiday. An
enterprise qualified for such treatment may receive a further tax rate reduction
related to the size of qualified capital contributions received. In addition,
from at least calendar year 2002 through calendar year 2007, an enterprise
qualified as an advanced technology enterprise under PRC tax law was also
entitled to a 50% reduction of income taxes.

On March 16, 2007, the National Peoples Congress of the PRC
determined to adopt the new corporate income tax law, or the New CIT Law. The
New CIT Law unifies the application scope, tax rate, tax deduction and
preferential policy for both domestic enterprises and FIEs. The New CIT Law
became effective on January 1, 2008. According to the New CIT Law, the
applicable income tax rate for Shenzhen BAK, BAK Electronics and BAK Tianjin
will be 25% after their preferential tax holidays and the transition period have
ended. During the transition period, tax rates for subject entities was 18% and
20% for the calendar years 2008 and 2009, respectively, and is expected to be
22% and 24% for the calendar years 2010 and 2011, respectively, before the
application of applicable tax holidays or other tax preferences.

Shenzhen BAK and BAK Electronics are both registered and
operate in Shenzhen, the PRC, and are each recognized as Manufacturing
Enterprise Located in Special Economic Zone. As a result, they have been
entitled to a preferential enterprise income tax rate of 15%. In accordance with
the relevant income tax laws, the profits of Shenzhen BAK and BAK Electronics
were fully exempted from income tax for two years from the first profitable
calendar year of operations after offset of accumulated taxable losses, followed
by a 50% exemption for the immediate next three calendar years.

The tax holiday of Shenzhen BAK commenced in 2002, the first
  calendar year in which Shenzhen BAK had assessable profit, and ended on December
  31, 2006. In addition, due to additional capital contributed by BAK International
  to Shenzhen BAK in both 2005 and 2006 and Shenzhen BAKs qualification
  as an advanced technology enterprise in 2007 and 2008, Shenzhen BAK was granted
  a preferential income tax rate of 7.5%, 11.8% and 12.6% for calendar years 2007,
  2008 and 2009, respectively. In accordance with the transition period of the
  New CIT Law and before considering the above-mentioned tax concessions, Shenzhen
  BAKs income tax rate for calendar years 2010 and 2011 are expected to
  be 22% and 24%, respectively, and starting in calendar year 2012, it is expected
  to be subject to an income tax rate of 25%. Therefore, Shenzhen BAKs income
  tax rates after consideration of its tax concessions are expected to be 15%
  for both calendar years 2010 and 2011and starting in calendar year 2012, it
  is expected to be subject to an income tax rate of 25%.

For BAK Electronics, established in August 2005, the same tax
holiday was in effect for calendar years 2006 and 2007, making BAK Electronics
fully exempt from any enterprise income tax. Following the tax holiday, a
three-year 50% reduction in BAK Electronics enterprise income tax rate
commenced. Pursuant to the transition period of the New CIT Law, BAK
Electronics income tax rates for calendar years 2010 and 2011 were expected to
be 22% and 24%, respectively, and starting in calendar year 2012 it was expected
to be subject to an income tax rate of 25%. Taking the 50% reduction into
account, BAK Electronics income tax rates are now expected to be 11% and 24%
for calendar years 2010 and 2011, respectively, with no change in its expected
2012 tax rate of 25%. BAK Electronics did not incur any enterprise income tax
for calendar year 2010 due to the current tax losses.

Shenzhen BAK and BAK Electronics received in aggregate a tax
benefit of $233,000 pursuant to their transitional tax rate for the six months
ended March 31, 2011, or $0.004 per basic share.

Tianjin Meicai is currently paying no enterprise income tax due
to current tax losses.

BAK Tianjin is currently paying no enterprise income tax due to
cumulative tax losses.

Our Canadian, German, Indian, and Hong Kong subsidiariesBAK
Canada, BAK Europe, BAK India, and BAK Internationalare subject to profits
taxes in their respective countries at rates of 38%, 25%, 30%, and 16.5%
respectively.

4

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However, because they do not have any assessable income derived
from or arising in those countries, they have not paid any such tax.

Our effective tax benefit rate was 3.9% for the six months
ended March 31, 2011 and our effective tax expense rate was 2.1% for the six
months ended March 31, 2010.

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 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.
Our imported raw materials that are used for manufacturing export products and
are deposited in bonded warehouses are exempt from import VAT.

Results of Operations

Comparison of Three Months Ended March 31, 2011 and March
31, 2010

The following table sets forth key components of our results of
operations for the periods indicated. All amounts, other than percentages, are
in thousands of U.S. dollars.

|                                          |   | Three Months Ended |   |   |        |   |   |         |  
|----------------------------------------- | - | ------------------ | - | - | ------ | - | - | ------- | -
|                                          |   | March
      31,    |   |   |        |   |   |         |  
|                                          |   | 2011               |   |   | 2010   |   |   | $Change |  
|Net revenues                              | $ | 46,711             |   | $ | 50,423 |   | $ | (3,712  | )
|Cost of revenues                          |   | 42,262             |   |   | 41,421 |   |   | 841     |  
|Gross profit                              |   | 4,449              |   |   | 9,002  |   |   | (4,553  | )
|Operating expenses:                       |   |                    |   |   |        |   |   |         |  
|Research and development
      expenses   |   | 1,933              |   |   | 1,625  |   |   | 308     |  
|Sales and marketing expenses              |   | 2,199              |   |   | 1,705  |   |   | 494     |  
|General and administrative
      expenses |   | 2,150              |   |   | 4,819  |   |   | (2,669  | )
|Total operating expenses                  |   | 6,282              |   |   | 8,149  |   |   | (1,867  | )
|Operating (loss) / income                 |   | (1,833             | ) |   | 853    |   |   | (2,686  | )
|Finance costs, net                        |   | (2,512             | ) |   | (2,190 | ) |   | 322     |  
|Government grant income                   |   | 31                 |   |   | 79     |   |   | (48     | )
|Other income / (expenses)                 |   | 49                 |   |   | (145   | ) |   | 194     |  
|Income tax benefits / (expenses)          |   | 182                |   |   | (1,146 | ) |   | 1,328   |  
|Net loss                                  | $ | (4,083             | ) | $ | (2,549 | ) | $ | 1,534   |  

Net Revenues. Net revenues decreased to $46.7
million for the three months ended March 31, 2011 as compared to $50.4 million
for the same period of the prior year, a decrease of $3.7 million or 7.4%. The
following sets forth the breakdown of our net revenues by battery cell type for
the periods indicated.

|                                 |   | Three Months Ended | 
|-------------------------------- | - | ------------------ | 
|                                 |   | March
      31,    | 
|                                 |   | 2011               | 
|                                 |   | (in thousands)     | 
|Prismatic cells                  |   |                    | 
|Aluminum-case cells              | $ | 16,251             | 
|Battery packs                    |   | 12,799             | 
|Cylindrical cells                |   | 15,198             | 
|Lithium polymer cells            |   | 1,676              | 
|High-power lithium battery cells |   | 787                | 
|Total                            | $ | 46,711             | 

- Net revenues from sales of aluminum-case cells decreased to $16.3 million
  in the three months ended March 31, 2011, from $24.6 million in the same
  period in fiscal year 2010, a decrease of $8.3 million or 33.9%, resulting
  from a decrease in our average selling price of 8.2% and a decrease in our sales
  volume of 19.8% driven by decreased sales in the PRC.

5

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- Net revenues from sales of battery packs increased to $12.8 million in the
    three months ended March 31, 2011, from $10.4 million in the same period in
    fiscal year 2010, an increase of $2.4 million or 23.2%. This resulted from
    an increase in sales volume of 26.4% due to increased export sales, offset
    by a 15.7% decrease in average selling price.
- Net revenues from sales of cylindrical cells increased to $15.2 million
    in the three months ended March 31, 2011, from $13.4 million in the same period
    in fiscal year 2010, an increase of $1.8 million or 13.5%, due to an increase
    in sales volume of 36.8% driven by increased sales to laptop manufacturers
    and offset by a decrease in our average selling prices of 16.8% which was
    driven by strong market competition on price.
- We sold $1.7 million in lithium polymer cells in the three months ended
    March 31, 2011, compared to $1.7 million in lithium polymer cells in the same
    period in fiscal year 2010, a decrease of $42,000 or 2.4%, resulting from
    a decrease of 25.8% in sales volume and offset by an increase of 20.0% in
    our average selling price. The decrease in sales volume was primary due to
    a slowdown in orders from new customers and some current clients postponed
    launching new products.
- We also sold approximately $787,000 in high-power lithium battery cells
    in the three months ended March 31, 2011, as compared to $352,000 in high-power
    lithium battery cells in the same period of fiscal year 2010, due to our increased
    sales of products used in electric bicycles, power tools, uninterruptible
    power supplies, and other applications from our Tianjin facility.

Cost of Revenues. Cost of revenues increased to
$42.3 million for the three months ended March 31, 2011, as compared to $41.4
million for the same period in fiscal year 2010, an increase of $841,000 or 2.0%. The increase in cost of revenues correlates to an increase of unit cylindrical
costs over the three months ended March 31, 2011.

As a result, gross profit for the three months ended March 31,
2011 was $4.4 million, or 9.5% of net revenues, as compared to gross profit of
$9.0 million, or 17.9% of net revenues, for the same period in fiscal year 2010.
The decrease in our gross profit as a percentage of net revenues was primarily
due to a significant decrease in sales volume for prismatic cells and a decrease
in the average selling price for prismatic and cylindrical cells during the
three months ended March 31, 2011 as compared to the same period of 2010.

Research and Development Costs. Research and
development costs increased to $1.9million for the three months ended
March 31, 2011, as compared to $1.6 million for the same period in fiscal year
2010, an increase of $308,000 or 19.0%. Salaries and cost of benefits of
R&D staff increased $373,000 primarily in response to guidance issued to
Shenzhen-based companies by relevant local government authorities during the
three months ended June 30, 2010 and effective July 1, 2010.

Sales and Marketing Expenses. Sales and marketing
expenses increased to $2.2 million for the three months ended March 31, 2011, as
compared to $1.7 million for the same period in fiscal year 2010, an increase of
$494,000, or 29.0%. Salaries and benefits of sales and marketing staff
increased $372,000 primarily in response to guidance issued to Shenzhen-based
companies by relevant local government authorities during the three months ended
June 30, 2010 and effective July 1, 2010. As a percentage of revenues, sales and
marketing expenses have increased to 4.7% for the three months ended March 31,
2011 from 3.3% for the same period in 2010, due to the decrease in revenues from
sales during the three months ended March 31, 2011.

General and Administrative Expenses. General and
administrative expenses decreased to $2.2 million, or 4.6% of revenues, for the
three months ended March 31, 2011, as compared to $4.8 million, or 9.6% of
revenues, for the same period in fiscal year 2010, a decrease of $2.7 million,
or 55.4%. Bad debt expenses decreased by $1.7 million during the three months
ended March 31, 2011. We also recognized exchange gain of $1.3 million for the
three months ended March 31, 2011, compared with exchange loss of $416,000 for
the three months ended March 31, 2010.

Operating Loss. As a result of the above,
operating loss totaled $1.8 million for the three months ended March 31, 2011,
as compared to an operating income of $853,000 for the same period of the prior
year, a decrease of $2.7 million, or 314.8%.

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Finance Costs, Net. Finance costs, net, increased
to $2.5 million for the three months ended March 31, 2011, as compared to $2.2
million for the same period of the prior fiscal year, an increase of $321,000or 14.7%. The increase in net finance costs is mainly attributable to an
increase in the average bank loan interest rates on both our short-term and
long-term bank loans during the three months ended March 31, 2011.

Government Grant Income / Other Income and
Expenses.We had deferred revenue from government grant
income of $31,000and other income of $49,000for the three-month
period ended March 31, 2011, as compared to government grant income of
$79,000and other expense of $145,000 for the same period of the prior
fiscal year. The government grant income for the three months ended March 31,
2011 and March 31, 2010 mainly consisted of subsidies to pay for the land use
rights to our corporate campus at BAK Industrial Park and government grant funds
to subsidize certain lithium battery projects. No present or future obligation
will arise from the receipt of such income.

Income Tax Benefits (Expense). Income tax
benefits were $182,000 for the three months ended March 31, 2011, as compared to
income tax expenses of $1.1 million for the same period of 2010. The change was
the result of a deferred tax provision during the three months ended March 31,
2011.

Net Loss. As a result of the foregoing, we had a
net loss of $4.1 million for the three months ended March 31, 2011 compared to
$2.5 million for the same period of 2010.

Comparison of Six Months Ended March 31, 2011 and March
  31, 2010

The following table sets forth key components of our results of
operations for the periods indicated. All amounts, other than percentages, are
in thousands of U.S. dollars.

|                                          |   | Six Months Ended |   |   |         |   |   |         |  
|----------------------------------------- | - | ---------------- | - | - | ------- | - | - | ------- | -
|                                          |   | March
      31,  |   |   |         |   |   |         |  
|                                          |   | 2011             |   |   | 2010    |   |   | $Change |  
|Net revenues                              | $ | 110,241          |   | $ | 100,651 |   | $ | 9,590   |  
|Cost of revenues                          |   | 95,795           |   |   | 82,089  |   |   | 13,706  |  
|Gross profit                              |   | 14,446           |   |   | 18,562  |   |   | (4,117  | )
|Operating expenses:                       |   |                  |   |   |         |   |   |         |  
|Research and development
      expenses   |   | 3,577            |   |   | 3,393   |   |   | 184     |  
|Sales and marketing expenses              |   | 4,472            |   |   | 3,734   |   |   | 738     |  
|General and administrative
      expenses |   | 10,029           |   |   | 13,456  |   |   | (3,427  | )
|Total operating expenses                  |   | 18,078           |   |   | 20,583  |   |   | (2,505  | )
|Operating loss                            |   | (3,632           | ) |   | (2,021  | ) |   | 1,611   |  
|Finance costs, net                        |   | (5,352           | ) |   | (4,344  | ) |   | 1,008   |  
|Government grant income                   |   | 638              |   |   | 434     |   |   | 204     |  
|Other income / (expenses)                 |   | 290              |   |   | (138    | ) |   | 428     |  
|Income tax benefit                        |   | 316              |   |   | 126     |   |   | 190     |  
|Net loss                                  | $ | (7,741           | ) | $ | (5,943  | ) | $ | 1,798   |  

Net Revenues. Net revenues increased to $110.2
million for the six months ended March 31, 2011 as compared to $100.6 million
for the same period of the prior year, an increase of $9.6 million or 9.5%. The
following sets forth the breakdown of our net revenues by battery cell type for
the periods indicated.

|                                 |   | Six Months Ended | 
|-------------------------------- | - | ---------------- | 
|                                 |   | March
      31,  | 
|                                 |   | 2011             | 
|                                 |   | (in thousands)   | 
|Prismatic cells                  |   |                  | 
|Aluminum-case cells              | $ | 46,849           | 
|Battery packs                    |   | 29,697           | 
|Cylindrical cells                |   | 25,669           | 
|Lithium polymer cells            |   | 5,140            | 
|High-power lithium battery cells |   | 2,886            | 
|Total                            | $ | 110,241          | 

7

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- Net revenues from sales of aluminum-case cells decreased to $46.8 million
  in the six months ended March 31, 2011, from $52.4 million in the same period
  in fiscal year 2010, a decrease of $5.6 million or 10.7%, resulting from a
  decrease in our average selling price of 8.6% and sales volume of 11.2% driven
  by decreased sales in the PRC.
- Net revenues from sales of battery packs increased to $29.7 million in the
  six months ended March 31, 2011, from $21.3 million in the same period in
  fiscal year 2010, an increase of $8.4 million or 39.4%. This resulted from an
  increase in sales volume of 6.7% due to increased export sales, offset by a
  2.5% decrease in average selling price.
- Net revenues from sales of cylindrical cells increased to $25.7 million in
  the six months ended March 31, 2011, from $21.5 million in the same period in
  fiscal year 2010, an increase of $4.2 million or 19.4%. This resulted from an
  increase in sales volume of 43.7% due to increased export sales, offset by a
  8.6% decrease in average selling price driven by fierce market price
  competition.
- We sold $5.1 million in lithium polymer cells in the six months ended March
  31, 2011, compared to $4.9 million in lithium polymer cells in the same period
  in fiscal year 2010, an increase of $254,000 or 5.2%, resulting from an
  increase of 34.0% in our average selling price, offset by a decrease of 19.8%
  in sales volume.
- We also sold approximately $2.9 million in high-power lithium battery cells
  in the six months ended March 31, 2011, as compared to $515,000 in high-power
  lithium battery cells in the same period of fiscal year 2010, due to our
  increased sales of products used in electric bicycles, power tools,
  uninterruptible power supplies, and other applications from our Tianjin
  facility.

Cost of Revenues. Cost of revenues increased to
$95.8 million for the six months ended March 31, 2011, as compared to $82.1
million for the same period in fiscal year 2010, an increase of $13.7 millionor 16.7%. The increase in cost of revenues correlates to an increase of
cylindrical battery cell unit costs over the six months ended March 31,
2011.

As a result, gross profit for the six months ended March 31,
2011 was $14.4 million, or 13.1% of net revenues, as compared to gross profit of
$18.6 million, or 18.4% of net revenues, for the same period in fiscal year
2010. Our decrease in gross profit as a percentage of net revenues was primarily
due to a decrease in prismatic sales volume and a decrease in the average
selling price in both prismatic and cylindrical cells during the six months
ended March 31, 2011, as compared to the same period of 2010.

Research and Development Costs. Research and
development costs increased to $3.5 million for the six months ended March 31,
2011, as compared to $3.4 million for the same period in fiscal year 2010, an
increase of $184,000 or 5.4%. Salaries and costs of benefits of R&D staff
increased $324,000 primarily as a response to guidance issued to Shenzhen-based
companies by relevant local government authorities during the three months ended
June 30, 2010 and effective July 1, 2010. Equity-based compensation included in
R&D costs during the six months ended March 31, 2011 decreased by $167,000
compared to the six months ended March 31, 2010 as charges relating to
outstanding stock options to R&D staff had already been reflected in large
part in the same periods in the fiscal year 2010.

Sales and Marketing Expenses. Sales and marketing
expenses increased to $4.5 million for the six months ended March 31, 2011, as
compared to $3.7 million for the same period in fiscal year 2010, an increase of
$738,000, or 19.8%. Salaries and welfare increased $443,000 primarily due to
increased basic salaries and benefits in response to guidance issued to
Shenzhen-based companies by relevant local government authorities during the
three months ended June 30, 2010 and effective July 1, 2010. As a percentage of
revenues, sales and marketing expenses have increased to 4.1% for the six months
ended March 31, 2011 from 3.7% for the same period in 2010, due to the
significant decrease in revenues from sales.

General and Administrative Expenses. General and
administrative expenses decreased to $10.0 million, or 9.1% of revenues, for the
six months ended March 31, 2011, as compared to $13.5 million, or 13.4% of
revenues, for the same period in fiscal year 2010, a decrease of $3.4 million,
or 25.5%. Bad debt expenses decreased by $3.2 million during the six months
ended March 31, 2011.

Operating Loss. As a result of the above,
operating loss totaled $3.6 million for the six months ended March 31, 2011, as
compared to $2.0 million for the same period of the prior year, an increase of
$1.6 million, or 79.9%.

8

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Finance Costs, Net. Finance costs, net, increased
to $5.4 million for the six months ended March 31, 2011, as compared to $4.3
million for the same period of the prior fiscal year, an increase of $1.0
millionor 23.2%. The increase in net finance costs is mainly
attributable to an increase in the average bank loan interest rates on both our
short-term and long-term bank loans and in discounts charged for bills
receivable recognized during the six months ended March 31, 2011.

Government Grant Income / Other Income and
Expenses.We had deferred revenue from government grant
income of $638,000and other income of $290,000for the six months
ended March 31, 2011, as compared to government grant income of $434,000and other expenses of $138,000 for the same period of the prior fiscal year.
The government grant income for the six month months ended March 31, 2011 and
2010 mainly consisted of subsidies to pay for the land use rights to our
corporate campus at BAK Industrial Park and government grant funds to subsidize
certain lithium battery projects. No present or future obligation will arise
from the receipt of such income.

Income Tax Benefits (Expense). Income tax
benefits were $316,000for the six months ended March 31, 2011, as
compared to income tax benefits of $126,000 for the same period of 2010. The
change was the result of a deferred tax provision during the six months ended
March 31, 2011.

Net Loss. As a result of the foregoing, we had a
net loss of $7.7 millionfor the six months ended March 31, 2011 compared
to $5.9 million for the same period of 2010.

Liquidity and Capital Resources

We have historically financed our liquidity requirements from a
variety of sources, including short-term bank loans, long-term bank loans and
bills payable under bank credit agreements, sale of bills receivable and
issuance of capital stock. As of March 31, 2011, we had cash and cash
equivalents of $25.6 million, as compared to $22.6 million as of September 30,
2010. In addition, we had pledged deposits amounting to $5.9 million and $9.4
million as of March 31, 2011 and September 30, 2010, respectively. Typically,
our banks require their borrowers to maintain deposits of approximately 10% to
100% of the outstanding loan balances and bills payable. The individual bank
loans have maturities ranging from three to twelve months which coincides with
the periods the cash remains pledged to the banks.

We had access to $235.5 millionin short-term credit
facilities and $45.8 millionin long-term credit facilities as of March
31, 2011. As of March 31, 2011, the principal outstanding amounts included
short-term bank loans of $142.4 million, long-term bank loans of $15.3
millionmaturing within one year, long-term bank loans of $15.3
millionmaturing in over one year, and bills payable of $46.1 million,
leaving $72.7 millionof short-term funds available for additional cash
needs. In addition, on July 10, 2008, our $60.0 million shelf registration
statement was declared effective by the SEC, pursuant to which we have raised
$36.6 million in cash from common stock purchases and issued common stock
warrants exercisable for up to $21.6 million in additional gross proceeds. As
$16.0 million of these warrants were not exercised before their expiration, we
may raise up to an additional $17.8 million in gross proceeds from future equity
financings under this shelf registration statement.

The following table sets forth a summary of our cash flows for
the periods indicated:

Cash Flow 
  (All amounts in thousands of U.S. dollars)

|                                                            |   | Six Months Ended |  
|----------------------------------------------------------- | - | ---------------- | -
|                                                            |   | March
      31   |  
|                                                            |   | 2011             |  
|Net cash provided by / (used in) operating
      activities | $ | 21,011           |  
|Net cash used in investing activities                       |   | (12,317          | )
|Net cash (used in) / provided by financing
      activities |   | (6,276           | )
|Effect of exchange rate on cash and cash equivalents        |   | 551              |  
|Net increase in cash and cash equivalents                   |   | 2,969            |  
|Cash and cash equivalents at beginning of the period        |   | 22,589           |  
|Cash and cash equivalents at end of period                  |   | 25,558           |  

9

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Operating Activities

Net cash provided by operating activities was $21.0 millionin the six months ended March 31, 2011, compared to $18.9 million of net
cash used in operating activities in the same period in fiscal year 2010. The
increase of $39.9 million in operating activities was mainly attributable to
longer credit terms we obtained from our suppliers.

Investing Activities

Net cash used in investing activities was $12.3 million in the
six months ended March 31, 2011, compared to $7.7 million of net cash used in
investing activities in the same period in fiscal year 2010. The net cash used
in investing activities during the period ended March 31, 2011 was mainly used
for procurement of machinery and equipment for our cylindrical cell line and
prismatic cell production line and construction of our Research and Development
Test Centre in Shenzhen.

Financing Activities

Net cash used in financing activities was $6.3 millionin the six months ended March 31, 2011, compared to $36.3 million net cash
provided by financing activities in the same period in 2010. This was mainly
attributable to (i) net proceeds of $19.6 million from a private placement of
our common stock completed in October 2009, (ii) a $9.3 million decrease in cash
deposits at banks as collateral in the six months ended March 31, 2011, and
(iii) decreased borrowings, net of repayments, of $13.5 million in the six
months ended March 31, 2011.

As of March 31, 2011, the principal amounts outstanding under
our credit facilities and lines of credit were as follows:

|                                                        |   |                |  |   | Amount     | 
|------------------------------------------------------- | - | -------------- |  | - | ---------- | 
|                                                        |   |                |  |   | Borrowed   | 
|                                                        |   |                |  |   | (includes  | 
|                                                        |   | Maximum        |  |   | bank loans | 
|                                                        |   | Amount         |  |   | and bills  | 
|                                                        |   | Available      |  |   | payable)   | 
|                                                        |   | (in thousands) | 
|Short-term credit facilities:                           |   |                |  |   |            | 
|Agricultural Bank of China                              | $ | 61,082         |  | $ | 61,082     | 
|Shenzhen Development Bank                               |   | 30,541         |  |   | 22,906     | 
|China CITIC Bank                                        |   | 12,216         |  |   | 12,216     | 
|Bank of China                                           |   | 68,717         |  |   | 53,888     | 
|China Everbright Bank                                   |   | 18,325         |  |   | 13,988     | 
|Bank of Communications                                  |   | 7,635          |  |   | -          | 
|Industrial Bank                                         |   | 9,544          |  |   | 7,635      | 
|Guangdong Development Bank                              |   | 15,270         |  |   | -          | 
|Tianjin Branch, Bank of Dalian                          |   | 12,216         |  |   | 6,418      | 
|                                                        |   |                |  |   |            | 
|SubtotalShort-term credit facilities                   | $ | 235,546        |  | $ | 178,133    | 
|                                                        |   |                |  |   |            | 
|Long-term credit facilities:                            |   |                |  |   |            | 
|Agricultural Bank of China                              |   | 7,635          |  |   | 7,635      | 
|China Development Bank                                  |   | 22,905         |  |   | 7,635      | 
|Agricultural Bank of China, Tianjin Jinxin
      Branch |   | 15,271         |  |   | 15,271     | 
|                                                        |   |                |  |   |            | 
|SubtotalLong-term credit facilities                    | $ | 45,811         |  | $ | 30,541     | 
|                                                        |   |                |  |   |            | 
|Lines of Credit:                                        |   |                |  |   |            | 
|Shenzhen Branch, Bank of China                          |   |                |  |   | 8,150      | 
|Tianjin Branch, Bank of China                           |   |                |  |   | 134        | 
|Tianjin Branch, Bank of Dalian                          |   |                |  |   | 1,959      | 
|Shanghai Pudong Development Bank                        |   |                |  |   | 185        | 
|                                                        |   |                |  |   |            | 
|SubtotalLines of credit                                |   |                |  | $ | 10,428     | 
|                                                        |   |                |  |   |            | 
|Total Principal Outstanding                             | $ | 281,357        |  | $ | 219,102    | 

10

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The above principal outstanding amounts under credit facilities
and lines of credit included short-term bank loans of $142.4 million, long-term
bank loans of $15.3 million maturing within one year and long-term bank loans of
$15.3 million maturing in over one year, and bills payable of $46.1 million.

For the purpose of presentation, the effect of increases in
bills payable balances is included in operating activities in the statements of
cash flows.

During the three months ended March 31, 2011, we repaid 25 loans
  totaling approximately $73.0 million, renewed three comprehensive credit facility
  agreements with a maximum loan amount of approximately $47.7 million, and six
  short-term bank loan agreements became effective totaling approximately $42.8
  million. The material financing terms of these loans are described below.

On January 20, 2011, we renewed our comprehensive credit
facility agreement with Shenzhen Development Bank, Longgang Branch, or Shenzhen
Development Bank, to provide a maximum loan amount of RMB 200 million
(approximately $30.5 million). Loans may be drawn at any time from January 26,
2011 to January 18, 2012 and will be due based on each loan agreement. This
credit facility agreement was guaranteed by BAK International, BAK Tianjin and
Mr. Xiangqian Li, and also was secured by $22.9 million of inventory. As of
March 31, 2011, we had three outstanding short-term loans under the
comprehensive credit facility with Shenzhen Development Bank totaling
approximately $22.9 million. The first loan, dated January 25, 2011, was
approximately $10.7 million, carried a floating interest rate equal to the
benchmark rate of the PBOC on the date of the loan agreement and adjusted
quarterly, and is repayable on January 24, 2012. The second loan, dated January
30, 2011, was approximately $9.2 million, carried a floating interest rate equal
to the benchmark rate of the PBOC on the date of the loan agreement and adjusted
quarterly, and is repayable on January 29, 2012. The third loan, dated August 4,
2010, was approximately $3.0 million, carried a floating interest rate at 95% of
the benchmark rate of the PBOC on the date of the loan agreement and adjusted
quarterly, and is repayable on June 14, 2011. The third loan was borrowed after
a predecessor loan was repaid on August 2, 2010, not December 31, 2010 as had
been reported in our Form 10-Q for the fiscal quarter ended December 31, 2010.

On December 26, 2010, we renewed our comprehensive credit
facility agreement with Industrial Bank, Shenzhen Hi-tech District Branch, or
Shenzhen Industrial Bank, to provide a maximum loan amount of RMB 62.5 million
(approximately $9.5 million). Loans may be drawn at any time over the one-year
period beginning December 26, 2010 and will be due based on each loan agreement.
This credit facility agreement was guaranteed by BAK International, BAK Tianjin
and Mr. Xiangqian Li. As of March 31, 2011, we had borrowed approximately $7.6
millionunder the loan agreement, carrying annual interest rate at 6.391%
and the due date is December 10, 2011.

On October 27, 2010, we renewed our comprehensive credit
facility agreement with Tianjin Branch, Bank of Dalian, or Bank of Dalian, to
provide a maximum loan amount of RMB 80 million (approximately $12.3 million),
effective January 2011. Loans may be drawn at any time over the period from
October 27, 2010 to January 26, 2012 and will be due based on each loan
agreement. This credit facility agreement was guaranteed up to RMB 50 million by
Shenzhen BAK Battery Co., Ltd. and Mr. Xiangqian Li. As of March 31, 2011, we
had borrowed approximately $6.1 million under a loan agreement dated October 27,
2010, bearing annual interest of 6.116%, adjusted monthly, repayable on October
26, 2011, and $0.3 million notes payable under this credit facility agreement.
In addition, we had also borrowed $1.9 million of short term loans separate from
the credit facility.

During the first quarter of our fiscal year ended September 30,
2011, we renewed our guaranty contract with Shanghai Pudong Development Bank to
provide guaranty for the loans drawn from November 30, 2010 to October 25, 2011.
The maximum guaranty amount for all loans will be RMB 30 million (approximately
$4.6 million). As of March 31, 2011, we had borrowed approximately $0.2 million
of notes payable outside any credit facility.

As of March 31, 2011, we had a comprehensive credit facility
agreement with Agricultural Bank of China, Shenzhen Eastern Branch, or
Agricultural Bank  Shenzhen Branch, to provide a maximum loan amount of RMB 500
million (approximately $75.7 million), including RMB 400 million (approximately
$60.6 million) of one-year term credit facilities and RMB 100 million
(approximately $15.1 million) of five-year term credit facilities. This
comprehensive credit facility agreement renewed a predecessor credit facility
agreement between Shenzhen BAK and Agricultural Bank  Shenzhen Branch dated
November 26, 2009 and governs all loans that were subject to the predecessor
agreement at the time of the renewal. New loans may be drawn under this credit
facility from November 15, 2010 through November 10, 2011, with the term of the
loan established at the time each new loan is drawn, except as to funds borrowed
under a loan agreement between Shenzhen BAK and Agricultural Bank  Shenzhen
Branch dated November 23, 2006 and effective December 18, 2006, or the 2006 Loan
Agreement, which may be drawn at any time within five years of December 18,
2006, and which will mature five years after such funds are drawn. Pursuant to
the comprehensive credit facility, Shenzhen BAK must obtain prior approval from Agricultural Bank  Shenzhen Branch
to renew long-term loans that are subject to this credit facility. In addition,
Shenzhen BAK undertook to ensure that the percentage of certain business
conducted with Agricultural Bank  Shenzhen Branch relative to such business it
conducts with all financial institutions combined be at least equal to the
percentage of its indebtedness to Agricultural Bank  Shenzhen Branch relative
to its indebtedness to all financial institutions combined (referred to as the
Percentages Undertaking). The business referred to in the preceding sentence
refers to the volume of transactional payments that are drawn from Shenzhen
BAKs accounts with Agricultural Bank Shenzhen Branch or applicable financial
institutions and the amount of foreign currencies deposited with Agricultural
Bank  Shenzhen Branch or applicable financial institutions. Shenzhen BAK also
undertook not to issue any dividends without the written consent of Agricultural
Bank  Shenzhen Branch prior to the expiration of all loans under this credit
facility (this undertaking and the Percentages Undertaking are collectively
referred to as the Undertakings). The obligations of Shenzhen BAK under this
comprehensive credit facility are guaranteed by Mr. Xiangqian Li, BAK Tianjin,
and BAK International. Shenzhen BAKs obligations under this credit facility
agreement are also guaranteed by Shenzhen BAKs pledge of the property ownership
and land use rights certificates relating to its manufacturing and other
facilities in Shenzhen, PRC, known as BAK Industrial Park. In the event that
Shenzhen BAK breaches any of the Undertakings or any guaranteed party breaches
any of its guaranty obligations, Agricultural Bank  Shenzhen Branch may, in
addition to exercising any other applicable remedies under the applicable
agreements, accelerate repayment of all loan amounts governed by this credit
facility.

11

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As of March 31, 2011, we had six outstanding short-term loans
under the comprehensive credit facility with Agricultural Bank  Shenzhen
Branch, totaling approximately $61.1 million, carrying annual interest at 5.31%
and 5.0445%, adjusted quarterly. The first loan, of approximately $9.2 million,
carried annual interest at 5.0445% and was due on April 20, 2011. We repaid this
loan on April 12, 2011. The second loan, of approximately $11.5 million, carried
annual interest at 5.0445% and was due on April 22, 2011. We repaid this loan on
April 14, 2011. The third loan, of approximately $13.7 million, carried annual
interest at 5.0445% and was due on April 19, 2011. We repaid this loan on April
15, 2011.The fourth loan, of approximately $11.5 million, currently
carries annual interest at 95% of the benchmark rate of the Peoples Bank of
China, or PBOC and is due on December 21, 2011. The fifth loan, of approximately
$7.6 million, currently carries annual interest at the benchmark rate of the
PBOC and is due on January 11, 2012. The sixth loan, of approximately $7.6
million, currently carries annual interest at the benchmark rate of the PBOC and
is due on January 18, 2012. Each of the loan agreements specifically provides
for acceleration of repayment of the loan under certain conditions, as well as
other penalties and remedies.

As of March 31, 2011, we also had two five-year term loans
totaling approximately $7.6 million under the Agricultural Bank  Shenzhen
Branch comprehensive credit facility carrying interest at 90% of the benchmark
rate of the PBOC for three-year to five-year long-term loans. The first loan, of
approximately $6.1 million, currently carries annual interest of 5.184% and is
due on January 25, 2012. The second loan, of approximately $9.1 million,
currently carries annual interest of 5.184% and is due in two installments of
approximately $7.6 million on January 25, 2011, which we repaid on January 25,
2011, and approximately $1.5 million on January 25, 2012, respectively. These
five-year term loans are specifically: (i) guaranteed by Mr. Xiangqian Li; (ii)
secured by Shenzhen BAKs machinery and equipment with carrying values of
approximately $26.4 million as of March 31, 2011; and (iii) secured by the
property ownership and land use rights certificates with an aggregate net book
value of $114.1 million as of March 31, 2011 in relation to the land on which
Shenzhen BAKs corporate campus had been constructed and any machinery and
equipment purchased and used at the campus subsequent to such construction.

As of March 31, 2011, we had a comprehensive credit facility
agreement with China Everbright Bank to provide a maximum amount of RMB 120
million (approximately $18.3 million) including RMB 40 million to support bank
acceptance bills (instruments commonly used in China that are similar to letters
of credit) and RMB 80 million to cover discounts on our notes receivable due to
their assignment to certain banks, suppliers, vendors, and other creditors from
November 8, 2010 to November 8, 2011. This credit facility agreement is
guaranteed by BAK International and Mr. Xiangqian Li. As of March 31, 2011, we
had borrowed $14.0 million of notes payable under this credit facility.

As of March 31, 2011, we had a credit facility with Shenzhen
Branch, China CITIC Bank to provide a maximum loan amount of RMB 80 million
(approximately $12.2 million). This credit facility was guaranteed by BAK
International and Mr. Xiangqian Li. As of March 31, 2011, we had borrowed $12.2
million under two loans at floating interest rate of 5.0445%, with a rate in
line with the benchmark interest rate adjustment of the PBOC under this credit
facility. The first loan, of approximately $6.0 million, carried floating
interest of 5.0445% and is repayable on June 11, 2011. The second loan, of
approximately $6.1 million, also carried floating interest of 5.0445% and is
also repayable on June 11, 2011.

As of March 31, 2011, we had also borrowed $0.1 million of
notes payable outside any credit facility from Bank of China, Tianjin Branch,
Tianjin Branch, or Bank of China.

12

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As of March 31, 2011, we had a credit facility agreement with
Bank of China to provide a maximum loan amount of RMB 450 million (approximately
$68.7 million). This credit facility was guaranteed by BAK International and Mr.
Xiangqian Li, and also is secured by machinery and equipment with carrying
values of approximately $30.4 million as of March 31, 2011. As of March 31,
2011, we had two outstanding short-term loans under the comprehensive credit
facility. The first loan, of approximately $22.8 million, currently carries
annual interest of 5.31% and is due on March 11, 2011. The second loan, of
approximately $7.7 million, currently carries annual interest at 95% of the
benchmark rate of the PBOC and is due on November 9, 2011, and $23.3 million of
notes payable under this credit facility agreement. We had also borrowed $8.1
million of notes payable separate from the credit facility.

As of March 31, 2011, we had a six-year long-term loan
agreement expiring on December 30, 2015 of RMB 150 million (approximately $22.9
million) with Shenzhen Branch, China Development Bank, or China Development
Bank. The long-term loan is secured by Shenzhen BAKs pledge of its land use
rights certificates, property ownership and equipment built-up by use of this
long-term loan pursuant to the loan agreement. According to the property
ownership and land use rights certificate that we obtained in relation to this
facility, the certificate may not be pledged without the approval of the
relevant government office. On April 7, 2010, the pledge of the land use rights
certificate to China Development Bank was approved by the relevant government
bureau. For further discussion regarding the status of property ownership rights
relating to this facility, please see Managements Discussion and Analysis of
Financial Condition and Results of Operations  Capital Expenditures. The
obligations of Shenzhen BAK under this loan agreement are guaranteed by Mr.
Xiangqian Li. We had borrowed approximately $7.6million under a loan
agreement dated March 1, 2010, bearing annual interest of 5.90%, adjusted
monthly, and repayable within 72 months.

As of March 31, 2011, we had a four-year, long-term loan
agreement expiring May 26, 2012 of RMB 100 million (approximately $15.3 million)
with Agricultural Bank of China, Tianjin Branch, or Agricultural Bank  Tianjin
Branch. This loan agreement is secured by the machinery and equipment purchased
for the automated high-power lithium battery cells production line at our
Tianjin facility with carrying values of approximately $1.9 million as of March
31, 2011. As of March 31, 2011, we had borrowed $15.3 million under this loan
agreement, payable in two installments: (i) RMB 50 million (approximately $7.6
million) on December 26, 2011; and (ii) RMB 50 million (approximately $7.7
million) on May 26, 2012.

We had negative working capital of $85.3 million as of March
31, 2011, as compared to negative working capital of $70.8 million as of
September 30, 2010. Current assets as of March 31, 2011 were $201.1 million
compared with $194.6 million as of September 30, 2010, an increase of $6.5
million. Current liabilities as of March 31, 2011 were $286.4 million compared
with $265.5 million as of September 30, 2010, an increase of $20.9 million. We
had short-term bank loans maturing in less than one year of $142.4 million and
long-term bank loans maturing within one year of $15.3 million as of March 31,
2011, or a total of $157.7 million of loans maturing within one year, as
compared to a total of $149.4 million of such loans as of September 30, 2010, an
increase of $8.3 million. We had long-term bank loans maturing in over one year
of $15.3 million as of March 31, 2011, as compared to $29.9 million of such
loans as of September 30, 2010, a decrease of $14.6 million.

We believe that our current cash and cash equivalents and
anticipated cash flow from operations will be sufficient to meet our anticipated
cash needs, including our cash needs for working capital and capital
expenditures for at least the next 12 months. We may, however, require
additional cash due to changing business conditions or other future
developments, including any investments or acquisitions we may decide to pursue.
If our existing cash and amount available under existing credit facilities is
insufficient to meet our requirements, we may seek to sell additional equity
securities, debt securities or borrow from lending institutions. We can make no
assurances that financing will be available in the amounts we need or on terms
acceptable to us, if at all. The sale of additional equity securities, including
convertible debt securities, would dilute the interests of our current
shareholders. The incurrence of debt would divert cash for working capital and
capital expenditures to service debt obligations and could result in operating
and financial covenants that restrict our operations and our ability to pay
dividends to our shareholders. If we are unable to obtain additional equity or
debt financing as required, our business operations and prospects may
suffer.

Capital Expenditures

We made capital expenditures of $12.3 and $7.7 million in the
six months ended March 31, 2011 and 2010, respectively. Our capital expenditures
were used primarily to purchase plant and equipment to expand our production
capacity.

The following table sets forth the breakdown of our capital
expenditures by use for the periods indicated.

13

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|                           |   | Six Months Ended | 
|-------------------------- | - | ---------------- | 
|                           |   | March
      31,  | 
|                           |   | 2011             | 
|                           |   | (in thousands)   | 
|Construction costs         | $ | 2,055            | 
|Purchase of equipment      |   | 10,262           | 
|                           |   |                  | 
|Total capital expenditures | $ | 12,317           | 

We estimate that our total capital expenditures in fiscal year
2011 will reach approximately $35.0 million, to purchase manufacturing equipment
for our production lines and for the construction of our new Research and
Development Test Centre at our Shenzhen facility.

We have completed the construction and put into use facilities
measuring 218,178 square meters comprised of manufacturing facilities,
warehousing and packaging facilities, dormitory space, dining halls and
administrative offices at the BAK Industrial Park in Shenzhen. Of that space,
approximately 81,411 square meters are manufacturing facilities. We have also
completed the construction and put into use facilities measuring 65,907 square
meters comprised of manufacturing facilities, dormitory space, dining halls and
other facilities in Tianjin. Of that space, approximately 44,129 square meters
are manufacturing facilities. The primary reasons for our continuing investments
in the facilities in Tianjin are to realize the benefits of our prior investment
in these facilities, to position the Company to capitalize on our knowledge of
and experience with established markets for lithium-phosphate technology, such
as electric bicycles, cordless power tools, and to penetrate emerging consuming
markets for this technology, such as electric cars, electric buses, light
electric vehicles, and hybrid electric vehicles. We have received several
contracts to supply high-power lithium cells for use in electric cars, electric
bicycles, UPS, and other applications.

According to the relevant PRC laws and regulations, a land use
right certificate, along with government approvals for land planning, project
planning, and construction must be obtained before the construction of any
building is commenced. An ownership certificate will be granted by the
government upon application under the condition that the aforementioned
certificate and government approvals are obtained. We recently obtained the land
use right to the tract of property on which we have constructed and on which we
plan further construction of our manufacturing facilities and other related
facilities in Shenzhen. While we have been constructing and have completed a
substantial part of the construction of our facilities with the approval of the
local government of Kuichong Township of Longgang District of Shenzhen, we
understand it did not have the authority to grant us the land use rights
certificate. However, the Company obtained approval for project planning and
construction from the government of Shenzhen on June 20, 2007. Under an
agreement with the government of Shenzhen for the acquisition of the land use
rights to BAK Industrial Park dated June 29, 2007, effective June 2008, the
government agreed to provide us with the land use rights certificate relating to
BAK Industrial Park on the condition that the Company would pay it an additional
$11,819,841. According to a notice received from the government of Shenzhen on
June 6, 2008, the Company obtained government grants of $7,889,991 to subsidize
this additional payment. As of September 30, 2008, the Company had fully paid
the remaining cost of $3,929,850 and had obtained the land use rights
certificate for BAK Industrial Park.

We have insurance for our manufacturing facilities for Shenzhen
BAK located in BAK Industrial Park and our manufacturing facilities at our
Tianjin facility. However, we are not able to insure our new Research and
Development Test Centre to be constructed in Shenzhen, China, until we receive
the required certificate of property ownership. Upon receipt of the certificate
of property ownership, we intend to procure such insurance. The applications for
the related certificates of property ownership rights are in process with
respect to our facilities at BAK Industrial Park and Tianjin (see discussion of
our Research and Development Test Centre below). As we have been granted the
land use rights certificate to the premises presently occupied by the Company in
BAK Industrial Park, there should be no legal barriers for us to obtain a
property ownership certificate for this property. However, it is possible that
the Shenzhen government may determine that even with our land use rights
certificate, the buildings constructed at BAK Industrial Park were still
constructed without the proper authority and must be vacated as illegitimate
constructions, and we might be subject to penalties and fines. However, we
believe that this possibility, while present, is remote.

As of September 30, 2007, we had fully paid the lease
prepayment amount of $14.1 million for the acquisition of land use rights
regarding our Tianjin facility. As of September 30, 2008, we had obtained the
relevant land use rights certificate to this facility. As of March 31, 2011, we
were in the process of obtaining the relevant property ownership rights
certificate to this facility.

14

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Pursuant to our land use rights certificate relating to our
Tianjin facility, the Tianjin government had originally requested that we
complete construction of the Tianjin facility before September 30, 2008. As of
September 30, 2008, we had not done so. Notwithstanding this requirement, we
have obtained an extension from the Business Administration Bureau of Beichen
District, Tianjin, to make the remaining contribution of the registered capital
by December 11, 2009, which we interpreted as an extension of the completion
date of construction to this date. On November 16, 2009, BAK International
contributed approximately US$9,000,000 capital to BAK Tianjin and as of November
16, 2009, the total contribution from BAK International was US$29,000,000. The
remaining US$70,990,000 was originally required to be fully contributed no later
than December 11, 2009 and an extension from the Business Administration Bureau
of Beichen District, Tianjin, was obtained to complete this contribution no
later than December 2012. As of March 31, 2011, we were in the process of
negotiating with the relevant government bureau for the extension of the
completion date of the construction of the Tianjin facility.

As of September 30, 2007, we had paid the lease prepayment
amount of $717,000 for the acquisition of land use rights for a new Research and
Development Test Centre to be constructed in Shenzhen, China. As of September
30, 2008, we had obtained the relevant property ownership and land use rights
certificate. Pursuant to the property ownership and land use rights certificate,
we are required to complete at least 25% of the construction of the new Research
and Development Test Centre facility by September 30, 2008. As of September 30,
2008, we had not done so. Notwithstanding this requirement, the Shenzhen
government has agreed to increase the dimensions of the Research and Development
Test Centre and signed two supplemental agreements with us. According to the
supplemental agreements, we are required to complete the construction by May 6,
2011. As of March 31, 2011, we are in the process of applying for an extension
from the Shenzhen government. In addition, according to the property ownership
and land use rights certificate, such land may not be pledged without the
approval of the relevant government office. We are required to pledge our
property ownership and land use rights certificate in relation to the new
Research and Development Test Centre to China Development Bank pursuant to the
loan agreement entered into with it. On April 7, 2010, the pledge of the land
use rights certificate to China Development Bank was approved by the relevant
government bureau. On April 20, 2010, the relevant land use rights certificate
was pledged to China Development Bank. In addition, the so-named property
ownership and land use rights certificate relating to this facility that we
were issued lacks certain terms relating to property ownership rights, which
appears to indicate that the granting government has so far only granted us the
relevant land use rights. As a result, this certificate may not be adequate
evidence of our property ownership rights to this property. We anticipate that
the government will re-grant this certificate with adequate property ownership
indicia after we have satisfied the above construction requirement and followed
certain procedures.

Contractual Obligations and Commercial Commitments

Please refer to Item 7, Managements Discussion and Analysis
of Financial Condition and Results of Operations Contractual Obligations and
Commercial Commitments in the 2010 Form 10-K for a discussion of our
contractual obligations and commercial commitments as of September 30, 2010.
There were no material changes outside the ordinary course of our business in
our contractual obligations and commercial commitments for the quarter ended
March 31, 2011.

Off-Balance Sheet Transactions

In the ordinary course of business practices in China, we enter
into transactions with banks or other lenders where we guarantee the debt of
other parties. These parties may be related to or unrelated to us. Conversely,
our debt with lenders may also be guaranteed by other parties which may be
related or unrelated to us.

Under U.S. GAAP, these transactions may not be recorded on our
balance sheet or may be recorded in amounts different than the full contract or
notional amount of the transaction. Our primary off-balance sheet arrangements
would result from our loan guaranties in which Shenzhen BAK, BAK International,
BAK Tianjin, and/or Mr. Xiangqian Li, our director, Chairman, President, and
Chief Executive Officer, would provide contractual assurance of the debt, or
guarantee the timely re-payment of principal and interest of the guaranteed
party. Neither Shenzhen BAK, BAK International, BAK Tianjin, nor Mr. Xiangqian
Li received, nor is entitled to receive, any consideration for the
above-referenced guarantees, and we are not independently obligated to indemnify
any of those guarantors for any amounts paid by them pursuant to any
guarantee.

Typically, no fees are received for this service. Thus, in
those transactions, Shenzhen BAK would have a contingent obligation related to
the guarantee of payment in the event the underlying loan is in default.

Transactions described above require accounting treatment under
ASC Topic 460 Guarantees. Under that standard, we would be required to
recognize the fair value of guarantees issued or modified after December 31,
2002, for non-contingent guarantee obligations, and also a liability for contingent
guarantee obligations based on the probability that the guaranteed party will
not perform under the contractual terms of the guaranty agreement.

15

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We have assessed the contingent liabilities arising from the
above-described guarantees and have considered them immaterial to the
consolidated financial statements. Therefore, no liabilities in respect of the
guarantees were recognized as of March 31, 2011. As of March 31, 2011, we
provided the guarantees for the following non-related parties: Nanjing Special
Metal Equipment Co., Ltd., Hunan Reshine New Material Ltd, Shenzhen Tongli
Hi-tech Co. Ltd., Shenzhen B&G Technology Development Co. Ltd., Shanghai
Global Children Products Co. Ltd., Shenzhen Yasu Technology Co. Ltd., Beijing
Triolion Technology Co. Ltd., Siping Juyuan Hanyang Plate Heat Exchanger Co. Ltd
and Tianjin Bike New Energy Research Institute. The maximum amount of our
exposure for these guarantees was $45.0 million and $40.2 million at March 31,
2011 and September 30, 2010, respectively.

Critical Accounting Policies

Our consolidated financial information has been prepared in
accordance with U.S. GAAP, which requires us to make judgments, estimates and
assumptions that affect (1) the reported amounts of our assets and liabilities,
(2) the disclosure of our contingent assets and liabilities at the end of each
fiscal period and (3) the reported amounts of revenues and expenses during each
fiscal period. We continually evaluate these estimates based on our own
historical experience, knowledge and assessment of current business and other
conditions, our expectations regarding the future based on available information
and reasonable assumptions, which together form our basis for making judgments
about matters that are not readily apparent from other sources. Since the use of
estimates is an integral component of the financial reporting process, our
actual results could differ from those estimates. Some of our accounting
policies require a higher degree of judgment than others in their application.

When reviewing our financial statements, the following also
should be considered: (1) our selection of critical accounting policies, (2) the
judgment and other uncertainties affecting the application of those policies,
and (3) the sensitivity of reported results to changes in conditions and
assumptions. We believe the following accounting policies involve the most
significant judgment and estimates used in the preparation of our financial
statements.

Recoverability of Long-Lived Assets

Our business is capital intensive and has required, and will
continue to require, significant investments in property, plant and equipment.
As of March 31, 2011 and September 30, 2010, the carrying amount of property,
plant and equipment, net was $232.3 million and $228.9 million, respectively. We
assess the recoverability of property, plant and equipment to be held and used
by a comparison of the carrying amount of an asset or group of assets to the
future net undiscounted cash flows expected to be generated by the asset or
group of assets. If such assets are considered impaired, the impairment
recognized is measured as the amount by which the carrying amount of the assets
exceeds the fair value of the assets.

A prolonged general economic downturn and, specifically, a
continued downturn in the battery cell industry as well as other market factors
could intensify competitive pricing pressure, create an imbalance of industry
supply and demand, or otherwise diminish volumes or profits. Such events,
combined with changes in interest rates, could adversely affect our estimates of
future net cash flows to be generated by our long-lived assets. Consequently, it
is possible that our future operating results could be materially and adversely
affected by additional impairment charges related to the recoverability of our
long-lived assets.

We have not recognized any additional impairment charges for
the long-lived assets for the six months ended March 31, 2011.

Inventory Obsolescence

We review our inventory for potential impairment on a quarterly
or more frequent basis as deemed necessary. Such review includes, but is not
limited to, reviewing the levels of inventory versus customer requirements and
obsolescence. The review and evaluation also considers the potential sale of
impaired inventory at lower than market prices. At each balance sheet date, we
identify inventories that are worth less than cost and write them down to their
net realizable value and the difference is charged to our cost of revenues of
that period. Though management considers such write-down of inventories adequate
and proper, changes in sales volumes due to unexpected economic or competitive
conditions are among the factors that could materially affect the adequacy of
such write-down.

16

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Allowance for Doubtful Accounts

The allowance for doubtful accounts is our best estimate of the
amount of probable credit losses in our accounts receivable. We determine the
allowance based on historical write-off experience, customer specific facts and
economic conditions. Bad debt expense is included in the general and
administrative expenses. We review outstanding account balances individually for
collectability. Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for recovery is
considered remote. As of March 31, 2011 and September 30, 2010, we had not
charged off any balances as we had yet to exhaust all means of collection.

Equity-Based Compensation

We adopted the provisions of ASC Topic 718 Compensation 
Stock Compensation, which requires the use of the fair value method of
accounting for share-based compensation. Under the fair value based method,
compensation cost related to employee stock options or similar equity
instruments is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period. ASC
Topic 718 also requires measurement of cost of a liability-classified award
based on its current fair value. The fair value of the liability-classified
award will be subsequently re-measured at each reporting date through the
settlement date. Change in fair value during the requisite service period will
be recognized as compensation cost over that period.

We determine fair value using the Black-Scholes model. Under
this model, certain assumptions, including the risk-free interest rate, the
expected life of the options and the estimated fair value of our ordinary shares
and the expected volatility, are required to determine the fair value of the
options. If different assumptions had been used, the fair value of the options
would have been different from the amount we computed and recorded, which would
have resulted in either an increase or decrease in the compensation expense.

Pursuant to ASC Topic 718, we have recognized compensation
costs of $934,000in relation to stock-based awards to our employees and
non-employee directors for the six months ended March 31, 2011, as an increase
in both the operating costs and shareholders equity.

Recently Issued Accounting Pronouncements

Please refer to note 1 to our condensed interim consolidated
financial statements, Principal Activities, Basis of Presentation and
Organization  Recently Issued Accounting Standards, for a discussion of
relevant pronouncements.

Exchange Rates

The financial records of Shenzhen BAK, BAK Electronics, BAK
Tianjin and Tianjin Meicai are maintained in RMB. In order to prepare our
financial statements, we have translated amounts in RMB into amounts in U.S.
dollars. The amounts of our assets and liabilities on our balance sheets are
translated using the closing exchange rate as of the date of the balance sheet.
Revenues, expenses, gains and losses are translated using the average exchange
rate prevailing during the period covered by such financial statements.
Adjustments resulting from the translation, if any, are included in our
cumulative other comprehensive income/(loss) in our stockholders equity section
of our balance sheet. All other amounts that were originally booked in RMB and
translated into U.S. dollars were translated using the closing exchange rate on
the date of recognition. Consequently, the exchange rates at which the amounts
in those comparisons were computed varied from year to year.

The exchange rates used to translate amounts in RMB into U.S.
dollars in connection with the preparation of our financial statements were as
follows:

|                                                                                                                                                                                                 |  | RMB
      per U.S. Dollar | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- | 
|                                                                                                                                                                                                 |  | 2011                      | 
|Balance sheet items as of March 31                                                                                                                                                               |  | 6.5486                    | 
|Amounts included in the statement of operations and comprehensive
      income, statement of changes in stockholders equity and statement
      of cash flows for the six months ended March 31 |  | 6.6178                    | 
|Balance sheet items as of September 30                                                                                                                                                           |  | -                         | 

17

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ITEM
3.           QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

We are exposed to interest rate risk primarily with respect to
our short-term bank loans and long-term bank loans. Although the interest rates,
which are based on the banks prime rates with respect to our short-term loans
are fixed for the terms of the loans, the terms are typically three to twelve
months for short-term bank loans and interest rates are subject to change upon
renewal. There were no material changes in interest rates for short-term bank
loans renewed during the three months ended March 31, 2011.

Please refer to Item 2, Managements Discussion and Analysis
of Financial Condition and Results of Operations Liquidity and Capital
Resources  Financing Activities for a discussion of our credit facilities and
loan agreements.

A hypothetical 1.0% increase in the annual interest rates for
all of our credit facilities under which we had outstanding borrowings at March
31, 2011, would increase net loss before provision for income taxes by
approximately $1.7 million, or 40.5%, for the three months ended March 31,
2011.Management monitors the banks prime rates in conjunction with our
cash requirements to determine the appropriate level of debt balances relative
to other sources of funds. We have not entered into any hedging transactions in
an effort to reduce our exposure to interest rate risk.

Foreign Exchange Risk

Although our reporting currency is the U.S. dollar, the
financial records of our operating subsidiaries are maintained in their local
currency, the RMB, which is our functional currency. Approximately 97.4% of our
revenues and 98.8% of our costs and expenses for the three months ended March
31, 2011 are denominated in RMB, with the balance denominated in U.S. dollars.
Approximately 99.6% of our assets except for cash were denominated in RMB as of
March 31, 2011. As a result, we are exposed to foreign exchange risk as our
revenues and results of operations may be affected by fluctuations in the
exchange rate between U.S. dollars and RMB. If the RMB depreciates against the
U.S. dollar, the value of our RMB revenues, earnings and assets as expressed in
our U.S. dollar financial statements will decline. Assets and liabilities of our
operating subsidiaries are translated into U.S. dollars at the exchange rate at
the balance sheet date, their equity accounts are translated at historical
exchange rates, and their income and expenses items are translated using the
average rate for the period. Any resulting exchange differences are recorded in
accumulated other comprehensive income or loss. An average appreciation
(depreciation) of the RMB against the U.S. dollar of 5% would increase
(decrease) our comprehensive income by $9.1 million based on our outstanding
revenues, costs and expenses, assets, and liabilities denominated in RMB as of
March 31, 2011. As of March 31, 2011, our accumulated other comprehensive income
was $31.3 million. We have not entered into any hedging transactions in an
effort to reduce our exposure to foreign exchange risk.

Inflation Risk

Inflationary factors such as increases in the cost of our
products and overhead costs may adversely affect our operating results. Although
we do not believe that inflation has had a material impact on our financial
position or results of operations to date, a high rate of inflation in the
future may have an adverse effect on our ability to maintain current levels of
gross margin and selling and general and administrative expenses as a percentage
of net revenues if the selling prices of our products do not increase with these
increased costs.

ITEM
4.           CONTROLS AND
PROCEDURES.

Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, our
management has carried out an evaluation, with the participation and under the
supervision of our chief executive officer and interim chief financial officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures as of March 31, 2011. Disclosure controls and procedures refer to
controls and other procedures designed to ensure that information required to be
disclosed in the reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC and that such information is accumulated and
communicated to our management, including our chief executive officer and
interim chief financial officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating our disclosure
controls and procedures, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired

18

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control objectives, and management is required to apply its
judgment in evaluating and implementing possible controls and procedures.

Management conducted its evaluation of disclosure controls and
procedures under the supervision of our chief executive officer and our interim
chief financial officer. Based upon, and as of the date of this evaluation, our
chief executive officer and interim chief financial officer concluded that our
disclosure controls and procedures were effective as of March 31, 2011.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial
reporting during our fiscal quarter ended March 31, 2011 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

PART IIOTHER INFORMATION

ITEM
1.           LEGAL
PROCEEDINGS.

None.

ITEM 1A.        RISK
FACTORS.

There have been no material changes to the risk factors
disclosed in our 2010 Form 10-K. Investors are directed to Item 1, Risk
Factors of the 2010 Form 10-K.

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

None.

ITEM
3.           DEFAULTS UPON
SENIOR SECURITIES.

None.

ITEM
4.           (REMOVED AND
RESERVED).

ITEM
5.           OTHER
INFORMATION.

We have no information to disclose that was required to be in a
report on Form 8-K during the period covered by this Report, but was not
reported. There have been no material changes to the procedures by which
security holders may recommend nominees to our board of directors.

ITEM
6.           EXHIBITS.

The following exhibits are filed as part of this report or
incorporated by reference: [To be updated with loan agreements, material
agreements, etc.]

|Exhibit No. |  | Description                                                                                                                                                                              
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                          
|31.1        |  | Certifications
        of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002.                                                           
|            |  |                                                                                                                                                                                          
|31.2        |  | Certifications
        of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002.                                                           
|            |  |                                                                                                                                                                                          
|32.1        |  | Certifications
        of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
        1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
        2002.
|            |  |                                                                                                                                                                                          
|32.2        |  | Certifications
        of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
        1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
        2002.

19

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|Exhibit No. |  | Description                                                                                                                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                    
|99.1        |  | Comprehensive
        Credit Facility Agreement of Maximum Amount (English summary), dated December
        26, 2010, between Shenzhen BAK Battery Co., Ltd. and Shenzhen Hi-Tech
        District Branch, Industrial Bank Co. Ltd.
|            |  |                                                                                                                                                                                                                                    
|99.2        |  | Loan
        Agreement (English summary), dated December 26, 2010, between Shenzhen
        BAK Battery Co., Ltd. and Shenzhen Hi-Tech District Branch, Industrial
        Bank Co. Ltd.                                           
|            |  |                                                                                                                                                                                                                                    
|99.3        |  | Guaranty
        Contract of Maximum Amount (English summary), dated December 26, 2010,
        between BAK International Limited and Shenzhen Hi-Tech District Branch,
        Industrial Bank Co. Ltd.                           
|            |  |                                                                                                                                                                                                                                    
|99.4        |  | Guaranty
        Contract of Maximum Amount (English summary), dated December 26, 2010,
        between BAK International (Tianjin) Ltd. and Shenzhen Hi-Tech District
        Branch, Industrial Bank Co. Ltd.                    
|            |  |                                                                                                                                                                                                                                    
|99.5        |  | Guaranty
        Contract of Maximum Amount (English summary), dated December 26, 2010,
        between Xiangqian Li and Shenzhen Hi-Tech District Branch, Industrial
        Bank Co. Ltd.                                        
|            |  |                                                                                                                                                                                                                                    
|99.6        |  | Comprehensive
        Credit Facility Agreement of Maximum Amount (English summary), dated October
        27, 2010, between BAK International (Tianjin) Ltd. and Tianjin Branch,
        Bank of Dalian.                          
|            |  |                                                                                                                                                                                                                                    
|99.7        |  | Guaranty
        Contract of Maximum Amount (English summary), dated October 27, 2010,
        between Shenzhen BAK Battery Co., Ltd, Xiangqian Li , and Tianjin Branch,
        Bank of Dalian.                                   
|            |  |                                                                                                                                                                                                                                    
|99.8        |  | Comprehensive
        Credit Facility Agreement of Maximum Amount (English summary), dated January
        20, 2011, between Shenzhen BAK Battery Co., Ltd and Shenzhen Longgang
        Branch, Shenzhen Development Bank.        
|            |  |                                                                                                                                                                                                                                    
|99.9        |  | Loan
        Agreement (English summary), dated August 4, 2010, between Shenzhen BAK
        Battery Co., Ltd. and Longgang Branch, Shenzhen Development Bank Co.,
        Ltd.                                                    
|            |  |                                                                                                                                                                                                                                    
|99.10       |  | Loan
        Agreement (English summary), dated January 25, 2011, between Shenzhen
        BAK Battery Co., Ltd. and Longgang Branch, Shenzhen Development Bank Co.,
        Ltd.                                                  
|            |  |                                                                                                                                                                                                                                    
|99.11       |  | Loan
        Agreement (English summary), dated January 30, 2011, between Shenzhen
        BAK Battery Co., Ltd. and Longgang Branch, Shenzhen Development Bank Co.,
        Ltd.                                                  
|            |  |                                                                                                                                                                                                                                    
|99.12       |  | Mortgage
        Contract of Maximum Amount (English summary), dated January 20, 2011,
        between Shenzhen BAK Battery Co., Ltd. and Longgang Branch, Shenzhen Development
        Bank Co., Ltd.                             
|            |  |                                                                                                                                                                                                                                    
|99.13       |  | Guaranty
        Contract of Maximum Amount (English summary), dated January 21, 2011,
        between BAK International Limited and Longgang Branch, Shenzhen Development
        Bank.                                           
|            |  |                                                                                                                                                                                                                                    
|99.14       |  | Guaranty
        Contract of Maximum Amount (English summary), dated January 21, 2011,
        between BAK International (Tianjin) Ltd. and Longgang Branch, Shenzhen
        Development Bank.                                    
|            |  |                                                                                                                                                                                                                                    
|99.15       |  | Guaranty
        Contract of Maximum Amount (English summary), dated January 21, 2011,
        between Xiangqian Li and Longgang Branch, Shenzhen Development Bank.                                                                
|            |  |                                                                                                                                                                                                                                    
|99.16       |  | Guaranty
        Contract of Maximum Amount (English summary), dated November 30, 2010,
        between Shenzhen BAK Battery Co., Ltd. and Tianjin Branch, Shanghai Pudong
        Development Bank.                               
|            |  |                                                                                                                                                                                                                                    
|99.17       |  | Loan
        Agreement (English summary), dated January 11, 2011, between Shenzhen
        BAK Battery Co., Ltd. and Shenzhen Eastern Branch, Agricultural Bank of
        China.                                                  
|            |  |                                                                                                                                                                                                                                    
|99.18       |  | Loan
        Agreement (English summary), dated January 18, 2011, between Shenzhen
        BAK Battery Co., Ltd. and Shenzhen Eastern Branch, Agricultural Bank of
        China.                                                  

20

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SIGNATURES

In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|Date: May 10, 2011 | **CHINA BAK BATTERY, INC.**
|------------------ | ---------------------------
|                   |                            
|                   | By:                        
|                   |                            
|                   |                            
|                   |                            
|                   | By:                        
|                   |                            
|                   |                            
|                   |                            

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