----

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| Nevada                                                                  |   | 88-0442833                                    |
|-------------------------------------------------------------------------|--------|-----------------------------------------------|
| (State      or other jurisdiction ofincorporation      or organization) |   | (I.R.S.      EmployerIdentification      No.) |

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| Title of each class                           |   | Name of each exchange on which      registered |
|-----------------------------------------------|--------|------------------------------------------------|
| Common      stock, par value $0.001 per share |   | The      NASDAQ Global Market                  |

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| Large      Accelerated Filer o                                                             |   | Accelerated      Filer   x    |
|--------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------|
| Non-Accelerated      Filer o       (Do      not check if a smaller reporting company) |   | Smaller      reporting company o                            |

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|          | PART      I                                                                                                                   |   |
|---------------|-------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                          |   |
| ITEM      1.  | BUSINESS.                                                                                                                     | 2      |
| ITEM 1A. | RISK      FACTORS.                                                                                                            | 22     |
| ITEM      1B. | UNRESOLVED      STAFF COMMENTS.                                                                                               | 43     |
| ITEM      2.  | PROPERTIES.                                                                                                                   | 43     |
| ITEM      3.  | LEGAL      PROCEEDINGS.                                                                                                       | 44     |
| ITEM      4.  | SUBMISSION      OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                                                     | 47     |
|          |                                                                                                                          |   |
|          | PART      II                                                                                                                  |   |
|          |                                                                                                                          |   |
| ITEM      5.  | MARKET      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER      PURCHASES OF EQUITY SECURITIES. | 47     |
| ITEM      6.  | SELECTED      FINANCIAL DATA.                                                                                                 | 49     |
| ITEM      7.  | MANAGEMENT’S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS.                        | 51     |
| ITEM      7A. | QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                                                              | 73     |
| ITEM      8.  | FINANCIAL      STATEMENTS AND SUPPLEMENTARY DATA.                                                                             | 73     |
| ITEM      9.  | CHANGES      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL      DISCLOSURE.                               | 74     |
| ITEM      9A. | CONTROLS      AND PROCEDURES.                                                                                                 | 75     |
| ITEM      9B. | OTHER      INFORMATION.                                                                                                       | 78     |
|          |                                                                                                                          |   |
|          | PART      III                                                                                                                 |   |
|          |                                                                                                                          |   |
| ITEM      10. | DIRECTORS,      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.                                                                  | 78     |
| ITEM      11. | EXECUTIVE      COMPENSATION.                                                                                                  | 81     |
| ITEM      12. | SECURITY      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED      STOCKHOLDER MATTERS.                     | 88     |
| ITEM      13. | CERTAIN      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR      INDEPENDENCE.                                          | 93     |
| ITEM      14. | PRINCIPAL      ACCOUNTING FEES AND SERVICES.                                                                                  | 93     |
|          |                                                                                                                          |   |
|          | PART      IV                                                                                                                  |   |
|          |                                                                                                                          |   |
| ITEM      15. | EXHIBITS,      FINANCIAL STATEMENT SCHEDULES.                                                                                 | 94     |

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|   | · | our      anticipated growth strategies and our ability to manage the expansion of      our business operationseffectively; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------|

|   | · | 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      limited operating history in developing, manufacturing and selling of      lithium-based rechargeable batterycells; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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 offering and capture new market      opportunities; |
|--------|--------|-----------------------------------------------------------------------------------------------|

|   | · | our      ability to obtain original equipment manufacturer (“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; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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 maintain costleadership; |
|--------|--------|----------------------------------------------|

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|   | · | our      ability to obtain property ownership rights to our    facilities; |
|--------|--------|----------------------------------------------------------------------------|

|   | · | other      risks identified in this Report and in our other reports filed with the      U.S. Securities and Exchange Commission (the  “SEC”). |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ITEM      1. | BUSINESS. |
|--------------|-----------|

|   | · | cellular      phones—customer segments include OEM customers and replacement battery      manufacturers; |
|--------|--------|----------------------------------------------------------------------------------------------------------------|

|   | · | notebook      computers; |
|--------|--------|--------------------------|

|   | · | portable      consumer electronics, such as digital cameras, portable media players,      portable gaming devices and personal digital assistants, or PDAs;      and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | other      applications, such as cordless power tools, mining lamps, light electric      vehicles, and hybrid electricvehicles. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Cylindrical      lithium-ion cells for use in notebook computers. We began commercial      production of cylindrical cells for notebook computers in June 2006 using      our new automated production line. We increased our manufacturing capacity      in line with advancements in our manufacturing technology and increases in      customer demand. As of September 30, 2008, we had installed and activated      our second automated cylindrical cell production line. We also began the      installation of our third and fourth automated cylindrical cell production      lines, which are expected to be completed in the middle of calendar year      2009. Our batteries have passed all safety, reliability and performance      tests by Hewlett-Packard Company (“HP”) designated battery pack      manufacturers, a significant step in our continuing efforts, pursuant to      our non-binding Letter of Intent with HP, to reach a definitive agreement      to supply lithium-ion battery cells to HP. During the past fiscal year, we      began shipping cylindrical cells to a number of well-known Taiwan-based      notebook computer and notebook computer battery companies, including      notebook computer battery pack manufacturer Simplo and notebook computer      maker, ASUSTek Computer, Inc., by way of third-party pack assembling      companies. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | High-power      lithium-phosphate cells for use in cordless power tools and other      applications. We began commercial production of lithium-phosphate cells at      our Shenzhen facility for use in cordless power tools in October 2005, and      for mining lamps in March 2007, at which point our lithium-phosphate cells      passed certain related governmental safety tests. In December 2006, a new      subsidiary, BAK Tianjin, was incorporated to focus on the R&D,      manufacturing and distribution of lithium-phosphate cells. We have since      shifted all lithium-phosphate cells manufacturing machinery, equipment and      personnel from our Shenzhen facility to our Tianjin facility. In October      2008, our Tianjin facility completed construction of its first      lithium-phosphate cells production line, and initiated trial production of      lithium-phosphate cells. The first shipment of its lithium-phosphate cells      will be used in cordless power tools and mining  lamps. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Lithium      polymer cells for use in ultra-portable electronic devices, such as      high-end cellular phones, PDAs, Bluetooth headsets, digital media players      and digital audio players. We began commercial production of lithium      polymer cells in September 2005. During the past fiscal year, we began      shipping polymer cells to a number of well-known companies, including      SanDisk Corporation, or SanDisk, BBK Electronic Industry Co., Ltd., or      BBK, Changhong Electric Co., Ltd., or Changhong,, and Gionee Communication      Equipment Co., Ltd., or Gionee. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                         | Nickel      Cadmium                            |   | Nickel      Metal Hydride            |   | Lithium-Ion                                                                                      |   | Lithium      Polymer                             |
|------------------------------|------------------------------------------------|--------|--------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|
| Commercial      introduction | 1899                                           |   | 1990                                 |   | 1992                                                                                             |   | 1999                                             |
| Energy      Density          | Low                                            |   | Medium                               |   | High                                                                                             |   | High                                             |
| Max      Voltage Per Cell    | 1.2                                            |   | 1.2                                  |   | 3.6                                                                                              |   | 3.6                                              |
| Memory      Effect           | Yes                                            |   | Minimal                              |   | No                                                                                               |   | No                                               |
| Environmental      Impact    | High                                           |   | Low                                  |   | Low                                                                                              |   | Low                                              |
| Core      Application Usage  | ToysLightsPower      toolsCordless      phones |   | Hybrid      vehiclesPower      tools |   | Cellular      phonesPortable      consumer electronics(1)Notebook      ComputersPower      tools |   | Small      scale portable electronics(2)Headsets |

----

----

|   | · | Lithium-ion.  Although      slightly lower in energy density than lithium metal, lithium-ion is safe      and maintains many of the attractive chemical characteristics of lithium.      The lithium-ion battery was first developed by Sony Corporation in 1992.      Our latest development efforts have been to look at new lithium compounds.      Lithium phosphate is a promising example which has recently been put into      commercial usage within the cordless power tool market. A lithium-ion      battery cell consists of a lithium cobalt positive electrode, a graphite      negative electrode, an electrolyte, lithium salt and separators. Both      electrodes have a layered structure. When charging, lithium-ions come out      from the positive electrode and move to the negative electrode through      electrolytes deposited between the layers of the graphite negative      electrode. When discharging, the reaction process is    reversed. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Lithium      Polymer.  First introduced in 1999, lithium polymer has      similar performance to lithium-ion but uses a polymer gel as the      electrolyte. This enables a more flexible and smaller form factor,      although at higher unit cost. Lithium polymer battery cells share many      characteristics of lithium-ion battery cells and provide similar      performance. Since lithium polymer cells can be made in a thin and      pouch-like case, thereby eliminating the need for a metal container, they      offer further reduction in weight and size, as well as, more importantly,      flexibility for design and physical configuration. These distinct      characteristics have made lithium polymer cells suitable for ultra-thin      portable electronic devices, such as high-end cellular phones, Bluetooth      headsets and PDAs. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | OEM: The OEMs      manufacture mobile phone handsets. They purchase batteries to support      their production of new cellular phones. They also purchase batteries to      serve the replacement market which they sell under their own brand      name. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Independent Battery      Manufacturers: These third-party manufacturers compete against the      OEM for a share of the replacement market. They typically sell their      products under their own brand name or a private  label. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Low      costs.  Relative to Japan and Korea, China has      significantly lower cost of labor as well as easy access to bulk raw      materials and land |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Proximity      to electronics supply chain.  Electronics manufacturing      in general continues to shift to China, giving China-based manufacturers a      further cost and cycle timeadvantage |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Proximity      to end-markets.  China’s domestic market for portable      applications such as cellular phones and portable audio-visual equipment      continues to grow rapidly. Proximity to end-market further consolidates      the cost and cycle time advantages for China  manufacturers. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Developing      R&D infrastructure.  China has focused in recent      years on building its research, development and engineering skill base in      all aspects of higher-end manufacturing, including batteries. For example,      lithium-ion and lithium polymer batteries are both part of China’s tenth      five-year development plan which allocates state resources to provide      financial assistance to companies engaged in the business of developing      and manufacturing batteries, to fund the research and development of new      battery material and to assist patent applications and the protection of      intellectual property. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | developing      more advanced technologies to increase our productivity and efficiency in      the manufacturing process and reduce the per unit cost of      production; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | developing      and commercializing cost-effective and easily available substitute      materials for existing raw materials that are more expensive and in      unstable supply; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | enhancing      our product quality, reliability and features to satisfy stringent OEM      requirements of leading end-application manufacturers and to keep abreast      of rapidly changing industry standards and evolving market trends;      and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | cooperating      closely with our partners to improve our technologies and develop new      application markets. |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | Shenzhen      BAK, located in Shenzhen, China, incorporated in August 2001, which      focuses on the development and manufacture of prismatic cells and      cylindrical cells; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | BAK      Electronics located in Shenzhen, China, incorporated in August 2005, which      focuses on the development and manufacture of lithium polymer cells;      and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | BAK      Tianjin, located in Tianjin, China, incorporated in December 2006, which      focuses on the development and manufacture of lithium-phosphate      cells. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Battery      Cell Type                      |   | End      applications*                                                                                                                                    |
|---------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                        |   |                                                                                                                                                      |
| Prismatic(steel-case      or aluminum case) |   | Cellular      phone [1]Camcorder      [2]MP3/MP4      player [1-2]Digital      camera [1]Digital      video camera [2-4]PDA      [1-2]BlackBerry      [1] |
|                                        |   |                                                                                                                                                      |
| Cylindrical                                 |   | CylindricalNotebook      computer [6-8]Digital      camera [1]Portable      DVD player [4]Camcorder      [2]Portable      gaming system [1-6]             |

----

| Battery Cell Type                 |   | End applications*                                                                                                           |
|-----------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------|
| Lithium      polymer              |   | Cellular      phone [1]MP3/MP4      player [1]Digital      camera [2]Bluetooth      headset [1]                             |
|                              |   |                                                                                                                        |
| High-power      lithium-phosphate |   | Cordless      power tool [4-8]Mining      lamp [6-10]Light      electric vehicle [24-150]Hybrid      electric vehicle [500] |

|                                    |   | Year ended September 30,                |    |
|-----------------------------------------|--------|-----------------------------------------|---------|
|                                    |   | 2008                                    |    |   | 2007 |   |   | 2006 |   |
|                                    |   | (in      thousands, except percentages) |    |
| Prismatic      cells                    |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Steel-case      cells                   |   |                                    | 29,300  |   |   |   | 11.9 | % |   |   | 34,869 |   |   |   | 23.9 | % |   |   | 64,299 |   |   |   | 44.7 | % |
| Aluminum-case      cells                |   |                                    | 130,110 |   |   |   | 53.0 | % |   |   | 69,916 |   |   |   | 47.9 | % |   |   | 49,514 |   |   |   | 34.4 | % |
| Battery      packs                      |   |                                    | 25,500  |   |   |   | 10.4 | % |   |   | 11,798 |   |   |   | 8.1 | % |   |   | 9,843 |   |   |   | 6.8 | % |
| Cylindrical      cells                  |   |                                    | 42,567  |   |   |   | 17.4 | % |   |   | 3,422 |   |   |   | 2.4 | % |   |   | 608 |   |   |   | 0.4 | % |
| High-power      lithium-phosphate cells |   |                                    | -       |   |   |   | - |   |   |   | 20,562 |   |   |   | 14.1 | % |   |   | 18,537 |   |   |   | 12.9 | % |
| Lithium      polymer cells              |   |                                    | 17,871  |   |   |   | 7.3 | % |   |   | 5,294 |   |   |   | 3.6 | % |   |   | 1,028 |   |   |   | 0.8 | % |
| Total                                   |   |                                    | 245,348 |   |   |   | 100 | % |   |   | 145,861 |   |   |   | 100 | % |   |   | 143,829 |   |   |   | 100 | % |

|                      |   |                        |
|----------------------|--------|------------------------|
| Prismatic      cells |   | Cylindrical      cells |

----

----

|                     |   |                       |
|---------------------|--------|-----------------------|
| Prismatic      Cell |   | Cylindrical      Cell |

----

----

| Materials              |   | Main      Suppliers                                                                                                                                                         |
|------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |   |                                                                                                                                                                        |
| Case      and caps     |   | Shenzhen      Tongli High-tech Co., Ltd., Shenzhen Dongri Technology Industry Co.,      Ltd.                                                                                |
|                   |   |                                                                                                                                                                        |
| Cathode      materials |   | CITIC      Guoan, Hunan Reshine New Material Ltd.                                                                                                                           |
|                   |   |                                                                                                                                                                        |
| Anode      materials   |   | Qingdao      Dahua, BTR Energy Materials Co., Ltd., Ningbo Shanshan New Material      Technology Co., Ltd.                                                                  |
|                   |   |                                                                                                                                                                        |
| Aluminum      foil     |   | Aluminum      Corporation of America, Shanghai                                                                                                                              |
|                   |   |                                                                                                                                                                        |
| Copper      foil       |   | Huizhou      United Copper Foil                                                                                                                                             |
|                   |   |                                                                                                                                                                        |
| Electrolyte            |   | Zhangjiagang      Guotai-Huarong New Chemical Materials Co., Ltd., Tianjin Jinniu Electric      Source Material Co., Ltd., Dongwan Shanshan Battery Material Co.,      Ltd. |
|                   |   |                                                                                                                                                                        |
| Separator              |   | Systems      Corporation                                                                                                                                                    |

| Instruments                          |   | Main      Suppliers                                                                                     |
|--------------------------------------|--------|---------------------------------------------------------------------------------------------------------|
|                                 |   |                                                                                                    |
| Coating      machine                 |   | Hirano      Tecseed Co., Ltd.                                                                           |
|                                 |   |                                                                                                    |
| Mixer                                |   | Systems      corporation                                                                                |
|                                 |   |                                                                                                    |
| Press      machine                   |   | SevenStar      Huachuang; Innovative Machine Corporation                                                |
|                                 |   |                                                                                                    |
| Ultrasonic      spot welding machine |   | Zhenjiang      Tianhua Machinery and Electrical Co., Ltd.                                               |
|                                 |   |                                                                                                    |
| Laser      seam welder               |   | Wuhan      Chutian Laser Group                                                                          |
|                                 |   |                                                                                                    |
| Vacuum      oven                     |   | Jiangsu      Wujiang Songling                                                                           |
|                                 |   |                                                                                                    |
| Winding      machine                 |   | Kaido      Manufacturing Co., Ltd.                                                                      |
|                                 |   |                                                                                                    |
| Slitting      machine                |   | Nishimura      Mfg. Co., Ltd.                                                                           |
|                                 |   |                                                                                                    |
| Electrolyte      filling machine     |   | BAK      (internally developed) / Canon Machinery Corporation, Haibar Systems      Ltd.                 |
|                                 |   |                                                                                                    |
| Aging      equipment                 |   | Guangzhou      Qingtian Industrial Co., Ltd., Hangzhou Hangke                                           |
|                                 |   |                                                                                                    |
| Testing      and sorting equipment   |   | Guangzhou      Qingtian Industrial Co., Ltd., Hangzhou Hangke, Shenzhen Liuyu Electronics      Co.,Ltd. |

|   | · | SCUD      (Fujian) Electronics Co., Ltd. |
|--------|--------|------------------------------------------|

|   | · | Shenzhen      Chaolitong Electronics Co., Ltd. |
|--------|--------|------------------------------------------------|

|   | · | Shenzhen      Hailutong Electronics Co., Ltd. |
|--------|--------|-----------------------------------------------|

|   | · | Huizhou      Desay Battery Co., Ltd. |
|--------|--------|--------------------------------------|

|   | · | Shenzhen      Weiliwang Electronics Co., Ltd. |
|--------|--------|-----------------------------------------------|

----

|                  |   | Year      ended September 30,           |    |
|-----------------------|--------|-----------------------------------------|---------|
|                  |   | 2008                                    |    |   | 2007 |   |   | 2006 |   |
|                  |   | (in      thousands, except percentages) |    |
|                  |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| PRC      Mainland     |   |                                    | 175,302 |   |   |   | 71.5 | % |   |   | 105,567 |   |   |   | 72.4 | % |   |   | 96,670 |   |   |   | 67.2 | % |
| Taiwan                |   |                                    | 41,905  |   |   |   | 17.0 | % |   |   | 7,025 |   |   |   | 4.8 | % |   |   | 4,825 |   |   |   | 3.4 | % |
| India                 |   |                                    | 5,661   |   |   |   | 2.3 | % |   |   | 4,299 |   |   |   | 2.9 | % |   |   | - |   |   |   | - |   |
| United      States    |   |                                    | 75      |   |   |   | - | (1) |   |   | 20,740 |   |   |   | 14.2 | % |   |   | 18,641 |   |   |   | 13.0 | % |
| Hong      Kong, China |   |                                    | 19,956  |   |   |   | 8.1 | % |   |   | 6,418 |   |   |   | 4.4 | % |   |   | 17,221 |   |   |   | 12.0 | % |
| Others*               |   |                                    | 2,449   |   |   |   | 1.1 | % |   |   | 1,812 |   |   |   | 1.3 | % |   |   | 6,472 |   |   |   | 4.4 | % |
| Total                 |   |                                    | 245,348 |   |   |   | 100 | % |   |   | 145,861 |   |   |   | 100.0 | % |   |   | 143,829 |   |   |   | 100 | % |

----

----

| Product      Type                 |   | Competitors |
|-----------------------------------|--------|-------------|
| Prismatic                         |   | Japan:      |   | Sanyo      Group, Sony Corporation, Matsushita Electric Works, Ltd., NEC Corporation,      Hitachi, Ltd. |
|                              |   | Korea:      |   | LG      Group, Samsung Electronics Co., Ltd., GS Group |
|                              |   | China:      |   | BYD      Company Limited, Tianjin Lishen Battery Joint-Stock Co., Ltd., Harbin      Coslight Technology International Group Co., Ltd. |
|                              |   |        |   |   |
| Cylindrical                       |   | Japan:      |   | Sanyo      Group, Sony Corporation, Matsushita Electric Works |
|                              |   | Korea:      |   | LG      Group, Samsung Electronics Co., Ltd. |
|                              |   |        |   |   |
| High-power      lithium-phosphate |   | Japan:      |   | Sanyo      Group, Sony Corporation |
|                              |   | Canada:     |   | E-one      Moli Energy (Canada) Limited |
|                              |   | China       |   | BYD      Company Limited |
|                              |   |        |   |   |
| Lithium      polymer              |   | Japan:      |   | Sanyo      Group, Sony Corporation |
|                              |   | China:      |   | Amperex      Technology Limited |

----

----

|   | · | Convention      establishing the World Intellectual Property Organization (WIPO      Convention) (June 4, 1980); |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

|   | · | Paris      Convention for the Protection of Industrial Property (March 19,      1985); |
|--------|--------|----------------------------------------------------------------------------------------|

|   | · | Patent      Cooperation Treaty (January 1, 1994);and |
|--------|--------|------------------------------------------------------|

|   | · | The      Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)      (November 11, 2001). |
|--------|--------|---------------------------------------------------------------------------------------------------------------|

----

----

----

| ITEM      1A. | RISK      FACTORS. |
|---------------|--------------------|

|   | · | maintain      our leading position in the cellular phone battery replacement      market; |
|--------|--------|-------------------------------------------------------------------------------------------|

|   | · | retain      existing customers or acquire newcustomers; |
|--------|--------|---------------------------------------------------------|

|   | · | diversify      our revenue sources by successfully developing and selling our products in      the global cellular phone OEM market, notebook computer battery market and      other markets; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | keep      up with evolving industry standards and market    developments; |
|--------|--------|---------------------------------------------------------------------------|

|   | · | respond      to competitive market conditions; |
|--------|--------|------------------------------------------------|

|   | · | maintain      adequate control of our expenses; |
|--------|--------|-------------------------------------------------|

|   | · | manage      our relationships with oursuppliers; |
|--------|--------|--------------------------------------------------|

|   | · | attract,      train, retain and motivate qualified personnel;  or |
|--------|--------|-------------------------------------------------------------------|

|   | · | protect      our proprietary technologies. |
|--------|--------|--------------------------------------------|

----

----

|   | · | the      need to raise significant additional funds to purchase and prepay raw      materials or to build additional manufacturing facilities, which we may be      unable to obtain on reasonable terms or atall; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | delays      and cost overruns as a result of a number of factors, many of which may be      beyond our control, such as increases in raw material prices and problems      with equipment vendors; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | delays      or denial of required approvals by relevant government      authorities; |
|--------|--------|--------------------------------------------------------------------------------------|

|   | · | diversion      of significant management attention and other resources;    and |
|--------|--------|--------------------------------------------------------------------------------|

|   | · | failure      to execute our expansion planeffectively. |
|--------|--------|--------------------------------------------------------|

----

----

|   | · | The      Company did not maintain effective controls over the financial reporting      process due to an insufficient complement of personnel with a level of      accounting knowledge, experience and training in the application of U.S.      generally accepted accounting principles (“U.S. GAAP”) commensurate with      the Company’s financial requirements. Additionally, the Company’s senior      management lacked an adequate level of accounting knowledge, experience      and training in the application of U.S. GAAP, and did not implement      adequate and proper supervisory review to ensure the consolidated      financial statements were prepared in conformity with U.S. GAAP and with      requirements of the U.S. Securities and Exchange    Commission. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      Company did not maintain effective controls over the accounting for      construction in progress assets and the determination of depreciation      expenses when the assets are ready for their intended use. Specifically,      the Company did not have effective controls to track and assess the      ready-for-intended-use status of the construction in progress assets to      ensure the construction in progress assets being transferred to property,      plant and equipment and the related commencement of depreciation expense      was in accordance with U.S. GAAP. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

|   | · | fluctuations      in currency exchange rates; |
|--------|--------|-----------------------------------------------|

|   | · | difficulty      in engaging and retaining distributors that are knowledgeable about, and      can function effectively in, overseasmarkets; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | increased      costs associated with maintaining marketing efforts in various      countries; |
|--------|--------|-----------------------------------------------------------------------------------------------|

|   | · | difficulty      and cost relating to compliance with the different commercial and legal      requirements of the overseas markets in which we offer our      products; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | inability      to obtain, maintain or enforce intellectual property rights;      and |
|--------|--------|--------------------------------------------------------------------------------------|

|   | · | trade      barriers such as export requirements, tariffs, taxes and other      restrictions and expenses, which could increase the prices of our products      and make us less competitive in somecountries. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

|   | · | a      higher level of governmentinvolvement; |
|--------|--------|-----------------------------------------------|

|   | · | a      early stage of development of the market-oriented sector of the      economy; |
|--------|--------|--------------------------------------------------------------------------------------|

|   | · | a      rapid growth rate; |
|--------|--------|---------------------------|

|   | · | a      higher level of control over foreign exchange;  and |
|--------|--------|------------------------------------------------------------|

|   | · | the      allocation of resources. |
|--------|--------|-----------------------------------|

----

----

----

----

----

----

|   | · | the      lack of depth and liquidity of the market for our common      stock; |
|--------|--------|-------------------------------------------------------------------------------|

|   | · | actual      or anticipated fluctuations in our quarterly operating      results; |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | announcements      of new products or services by us or our  competitors; |
|--------|--------|---------------------------------------------------------------------------|

|   | · | changes      in financial estimates by securitiesanalysts; |
|--------|--------|------------------------------------------------------------|

----

|   | · | market      conditions in our industry; |
|--------|--------|-----------------------------------------|

|   | · | changes      in operations or market valuations of other companies in our      industry; |
|--------|--------|------------------------------------------------------------------------------------------|

|   | · | our      sales of common stock; |
|--------|--------|---------------------------------|

|   | · | investor      perceptions of us and our business; |
|--------|--------|---------------------------------------------------|

|   | · | changes      in the estimates of the future size and growth rate of our      markets; |
|--------|--------|---------------------------------------------------------------------------------------|

|   | · | market      conditions in industries of ourcustomers; |
|--------|--------|-------------------------------------------------------|

|   | · | announcements      by our competitors of significantacquisitions; |
|--------|--------|-------------------------------------------------------------------|

|   | · | strategic      partnerships, joint ventures or capital  commitments; |
|--------|--------|----------------------------------------------------------------------|

|   | · | recruitment      or departures of key personnel; |
|--------|--------|--------------------------------------------------|

|   | · | potential      litigation; |
|--------|--------|----------------------------|

|   | · | any      material weaknesses in our internal control over financial reporting;      and |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | · | the      overall economy, geopolitical events, terrorist activities, or threats of      terrorism. |
|--------|--------|----------------------------------------------------------------------------------------------------|

----

| ITEM      1B. | UNRESOLVED      STAFF COMMENTS. |
|---------------|---------------------------------|

| ITEM      2. | PROPERTIES. |
|--------------|-------------|

| Shenzhen      BAK facilities       | Usage                             |   | Area (m2)) |    |
|------------------------------------|-----------------------------------|--------|-----------------|---------|
| Completed      facilities          | Manufacturing                     |   |            |    |
|                               | Prismatic      (steel-case)       |   |            | 27,776  |   |
|                               | Prismatic      (aluminum-case)    |   |            | 45,179  |   |
|                               | Cylindrical                       |   |            | 15,400  |   |
|                               | Lithium      polymer              |   |            | 13,888  |   |
|                               | R&D      and administrative   |   |            | 18,593  |   |
|                               | Warehousing                       |   |            | 19,087  |   |
|                               | Workers’      dormitory     |   |            | 46,124  |   |
|                               | Other      facilities             |   |            | 32,131  |   |
|                               | Sub-total                         |   |            | 218,178 |   |
|                               |                              |   |            |    |   |
| BAK      Tianjin facilities        |                              |   |            |    |   |
| Completed      facilities          | Manufacturing                     |   |            |    |   |
|                               | High-power      lithium-phosphate |   |            | 17,867  |   |
|                               |                              |   |            |    |   |
| Facilities      under construction | Manufacturing                     |   |            |    |   |
|                               | High-power      lithium-phosphate |   |            | 25,966  |   |
|                               | Workers’      dormitory     |   |            | 6,616   |   |
|                               | Dinning      hall                 |   |            | 7,304   |   |
|                               | Other      facilities             |   |            | 110     |   |
|                               | Sub-total                         |   |            | 57,863  |   |
|                               |                              |   |            |    |   |
|                               | Total                             |   |            | 276,041 |   |

----

| ITEM      3. | LEGAL      PROCEEDINGS. |
|--------------|-------------------------|

----

----

----

| ITEM      4. | SUBMISSION      OF MATTERS TO A VOTE OF SECURITYHOLDERS. |
|--------------|----------------------------------------------------------|

| Name of Director |   | For    |       |   | Against |   |   | Withheld |   |   | Abstention |   |   | BrokerNon-Votes |    |
|----------------------------|--------|--------|------------|--------|---------|--------|--------|----------|--------|--------|------------|--------|--------|-----------------|---------|
| Xiangqian      Li          |   |   | 27,139,849 |   |    |   | 38,269 |     |   |   | -          |   |   |            | 454,561 |   |   |   | - |   |
| Huanyu      Mao            |   |   | 27,176,804 |   |    |   | 1,314  |     |   |   | -          |   |   |            | 454,561 |   |   |   | - |   |
| Richard      B. Goodner    |   |   | 27,172,987 |   |    |   | 5,131  |     |   |   | -          |   |   |            | 454,561 |   |   |   | - |   |
| Charlene      Spoede Budd  |   |   | 27,162,321 |   |    |   | 15,797 |     |   |   | -          |   |   |            | 454,561 |   |   |   | - |   |
| Chunzhi      Zhang         |   |   | 27,170,887 |   |    |   | 7,231  |     |   |   | -          |   |   |            | 454,561 |   |   |   | - |   |

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

|                    |   | Common Stock |   |
|-------------------------|--------|-------------------|--------|
| Quarter      Ended      |   | High              |   |   | Low |   |
|                    |   |              |   |   |   |   |
| Fiscal      2008        |   |              |   |   |   |   |
| December      31, 2007  |   | $                 | 8.58   |   |   | $ | 3.58 |   |
| March      31, 2008     |   | $                 | 5.88   |   |   | $ | 3.16 |   |
| June      30, 2008      |   | $                 | 5.25   |   |   | $ | 3.60 |   |
| September      30, 2008 |   | $                 | 5.10   |   |   | $ | 3.50 |   |
| Fiscal      2007        |   |              |   |   |   |   |   |   |
| December      31, 2006  |   | $                 | 7.99   |   |   | $ | 5.81 |   |
| March      31, 2007     |   | $                 | 6.49   |   |   | $ | 3.25 |   |
| June      30, 2007      |   | $                 | 4.42   |   |   | $ | 3.05 |   |
| September      30, 2007 |   | $                 | 8.82   |   |   | $ | 3.36 |   |

----

----

| ITEM      6. | SELECTED      FINANCIAL DATA. |
|--------------|-------------------------------|

|                                                                                     |   | As of September 30,                             |    |
|------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|---------|
|                                                                                     |   | 2008                                                           |    |   | 2007 |   |   | 2006(1) |   |   | 2005 |   |   | 2004 |   |
|                                                                                     |   | (in thousands, except per share data) |    |
| Statement      of Operations Data:                                                       |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      revenues                                                                        |   | $                                                              | 245,348 |   |   | $ | 145,861 |   |   | $ | 143,829 |   |   | $ | 101,922 |   |   | $ | 63,746 |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of revenues                                                                    |   | $                                                              | 214,442 |   |   | $ | 120,255 |   |   | $ | 104,196 |   |   | $ | 76,047 |   |   | $ | 50,294 |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      profit                                                                        |   | $                                                              | 30,906  |   |   | $ | 25,606 |   |   | $ | 39,633 |   |   | $ | 25,875 |   |   | $ | 13,452 |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses                                                                  |   | $                                                              | 31,402  |   |   | $ | 21,025 |   |   | $ | 17,061 |   |   | $ | 10,391 |   |   | $ | 4,679 |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      (loss) / income                                                           |   | $                                                              | (496    | ) |   | $ | 4,581 |   |   | $ | 22,572 |   |   | $ | 15,484 |   |   | $ | 8,773 |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Finance      costs, net                                                                  |   | $                                                              | 11,021  |   |   | $ | 5,225 |   |   | $ | 1,888 |   |   | $ | 845 |   |   | $ | 454 |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gain      on trading securities                                                          |   | $                                                              | -       |   |   | $ | - |   |   | $ | 279 |   |   | $ | - |   |   | $ | - |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Government      grant income                                                             |   | $                                                              | 1,774   |   |   | $ | 1,035 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      (income) / expenses                                                           |   | $                                                              | (757    | ) |   | $ | 103 |   |   | $ | 205 |   |   | $ | 490 |   |   | $ | 10 |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      taxes (benefits) / expenses                                                  |   | $                                                              | (1,045  | ) |   | $ | (195 | ) |   | $ | 593 |   |   | $ | 652 |   |   | $ | 507 |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      (loss) / income                                                                 |   | $                                                              | (7,941  | ) |   | $ | 483 |   |   | $ | 20,165 |   |   | $ | 13,497 |   |   | $ | 7,802 |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      comprehensive income-  Foreign      currency translation adjustment |   | $                                                              | 15,261  |   |   | $ | 6,436 |   |   | $ | 2,443 |   |   | $ | 1,005 |   |   | $ | - | (3) |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      income                                                                |   | $                                                              | 7,320   |   |   | $ | 6,919 |   |   | $ | 22,608 |   |   | $ | 14,502 |   |   | $ | 7,802 |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      (loss) / income per share data(2)Basic      and Diluted                         |   | $                                                              | (0.15   | ) |   | $ | 0.01 |   |   | $ | 0.41 |   |   | $ | 0.35 |   |   | $ | 0.25 |   |
|                                                                                     |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average number of shares                                                   |   |                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                    |   |                                                           | 52,314  |   |   |   | 48,979 |   |   |   | 48,880 |   |   |   | 38,289 |   |   |   | 31,226 |   |
| Diluted                                                                                  |   |                                                           | 52,314  |   |   |   | 49,442 |   |   |   | 48,913 |   |   |   | 38,409 |   |   |   | 31,226 |   |

----

|                                            |   | As of September 30, |    |
|-------------------------------------------------|--------|------------------------------------|---------|
|                                            |   | 2008                               |    |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                            |   | (in thousands)                |    |
| Consolidated      Balance Sheet Data:           |   |                               |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents                  |   | $                                  | 35,707  |   |   | $ | 14,197 |   |   | $ | 21,100 |   |   | $ | 33,056 |   |   | $ | 3,212 |   |
| Pledged      deposits                           |   | $                                  | 4,449   |   |   | $ | 4,595 |   |   | $ | 12,972 |   |   | $ | 19,392 |   |   | $ | 7,120 |   |
| Trade      accounts receivable, net             |   | $                                  | 82,740  |   |   | $ | 63,151 |   |   | $ | 64,332 |   |   | $ | 43,864 |   |   | $ | 21,018 |   |
| Inventories                                     |   | $                                  | 67,583  |   |   | $ | 59,827 |   |   | $ | 47,389 |   |   | $ | 21,696 |   |   | $ | 29,536 |   |
| Property,      plant and equipment, net         |   | $                                  | 195,435 |   |   | $ | 145,123 |   |   | $ | 109,406 |   |   | $ | 65,751 |   |   | $ | 41,706 |   |
| Lease      prepayments, net                     |   | $                                  | 31,782  |   |   | $ | 17,884 |   |   | $ | 3,161 |   |   | $ | 3,155 |   |   | $ | 4,003 |   |
| Total      assets                               |   | $                                  | 424,047 |   |   | $ | 307,229 |   |   | $ | 259,655 |   |   | $ | 189,486 |   |   | $ | 109,155 |   |
|                                            |   |                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      current liabilities                  |   | $                                  | 193,466 |   |   | $ | 150,926 |   |   | $ | 145,722 |   |   | $ | 98,944 |   |   | $ | 88,650 |   |
| Short-term      bank loans                      |   | $                                  | 105,598 |   |   | $ | 89,871 |   |   | $ | 67,900 |   |   | $ | 39,545 |   |   | $ | 29,116 |   |
| Long      term liabilities                      |   | $                                  | 63,509  |   |   | $ | 29,571 |   |   | $ | 305 |   |   | $ | 233 |   |   | $ | 75 |   |
| Total      liabilities                          |   | $                                  | 256,975 |   |   | $ | 180,497 |   |   | $ | 146,027 |   |   | $ | 99,177 |   |   | $ | 88,725 |   |
| Total      stockholders’ equity           |   | $                                  | 167,072 |   |   | $ | 126,732 |   |   | $ | 113,628 |   |   | $ | 90,309 |   |   | $ | 20,430 |   |
|                                            |   |                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      liabilities and owners’ equity |   | $                                  | 424,047 |   |   | $ | 307,229 |   |   | $ | 259,655 |   |   | $ | 189,486 |   |   | $ | 109,155 |   |

|                                                       |   | As of September 30, |   |
|------------------------------------------------------------|--------|------------------------------------|--------|
|                                                       |   | 2008                               |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                                       |   | (in thousands)                |   |
| Other      Consolidated Financial Data:                    |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      margin (1)                                      |   |                               | 12.6   | % |   |   | 17.6 | % |   |   | 27.6 | % |   |   | 25.4 | % |   |   | 21.1 | % |
| Operating      (loss) / margin (2)                         |   |                               | (0.2   | )% |   |   | 3.1 | % |   |   | 15.7 | % |   |   | 15.2 | % |   |   | 13.8 | % |
| Net      (loss) / margin (3)                               |   |                               | (3.2   | )% |   |   | 0.3 | % |   |   | 14.0 | % |   |   | 13.2 | % |   |   | 12.2 | % |
| Capital      expenditures                                  |   | $                                  | 51,228 |   |   | $ | 65,835 |   |   | $ | 41,382 |   |   | $ | 30,594 |   |   | $ | 28,254 |   |
| Depreciation      and amortization                         |   | $                                  | 13,249 |   |   | $ | 8,912 |   |   | $ | 5,816 |   |   | $ | 3,581 |   |   | $ | 1,758 |   |
| Net      cash provided by / (used in) operating activities |   | $                                  | 2,704  |   |   | $ | 2,986 |   |   | $ | (5,685 | ) |   | $ | 8,014 |   |   | $ | 3,593 |   |
| Net      cash used in investing activities                 |   | $                                  | 50,551 |   |   | $ | 65,895 |   |   | $ | 41,416 |   |   | $ | 30,596 |   |   | $ | 28,300 |   |
| Net      cash provided by financing activities             |   | $                                  | 67,164 |   |   | $ | 55,244 |   |   | $ | 35,047 |   |   | $ | 52,363 |   |   | $ | 27,249 |   |

----

| ITEM      7. | MANAGEMENT’S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS. |
|--------------|--------------------------------------------------------------------------------------------------------|

|   | · | cellular      phones — customer segments include OEM and replacement battery      manufacturers; |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | · | notebook      computers; |
|--------|--------|--------------------------|

|   | · | portable      consumer electronics, such as digital media devices, portable media      players, and PDAs; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------|

|   | · | cordless      power tools and other products using high-power lithium-phosphate      batteries, such as mining lamps, hybrid electric vehicles, and light      electric vehicles. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Cylindrical      lithium-ion cells for use in notebook computers. We began commercial      production of cylindrical cells for notebook computers in June 2006 using      our new automated production line. We increased our manufacturing capacity      in line with advancements in our manufacturing technology and increases in      customer demand. As of September 30, 2008, we had installed and activated      our second automated cylindrical cell production line. We also began the      installation of our third and fourth automated cylindrical cell production      lines, which are expected to be completed in the middle of calendar year      2009. Our batteries have passed all safety, reliability and performance      tests by HP designated battery pack manufacturers, a significant step in      our continuing efforts, pursuant to our non-binding Letter of Intent with      HP, to reach a definitive agreement to supply lithium-ion battery cells to      HP.  During the past fiscal year, we began shipping cylindrical      cells to a number of well-known Taiwan-based notebook computer and      notebook computer battery companies, including notebook computer battery      pack manufacturer Simplo and notebook computer maker, ASUSTek Computer,      Inc., by way of third-party pack assembling  companies. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | High-power,      lithium-phosphate cells for use in cordless power tools and other      applications. We began commercial production of lithium-phosphate cells at      our Shenzhen facility for use in cordless power tools in October 2005, and      for mining lamps in March 2007, at which point our lithium-phosphate cells      passed certain related safety tests set by the Quality Supervision and      Testing Center of Chemical and Physical Power Sources of the PRC’s      Ministry of Information Industry. In December 2006, a new subsidiary, BAK      Tianjin, was incorporated to focus on the R&D, manufacturing and      distribution of lithium-phosphate cells. We have since shifted all      lithium-phosphate cells manufacturing machinery, equipment and personnel      from our Shenzhen facility to our Tianjin facility. In October 2008, our      Tianjin facility completed construction of its first lithium-phosphate      cells production line, and initiated trial production of lithium-phosphate      cells. The first shipment of its      lithium-phosphate  cells  will be used in cordless      power tools and mining lamps. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Lithium      polymer cells for use in ultra-portable electronic devices, such as      high-end cellular phones, PDAs, Bluetooth headsets, digital media players      and digital audio players. We began commercial production of lithium      polymer cells in September 2005. During the past fiscal year, we began      shipping polymer cells to a number of well-known companies, including      SanDisk, BBK, Changhong, andGionee. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | OEM.  The      OEMs manufacture mobile phone handsets. They purchase batteries to support      their production of new cellular phones. They also purchase batteries to      serve the replacement market which they sell under their own brand      name. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Independent Battery      Manufacturers.  These third party manufacturers compete      against the OEM for a share of the replacement market. They typically sell      their products under their own brand name or a private    label. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | The      Company did not maintain effective controls over the financial reporting      process due to an insufficient complement of personnel with a level of      accounting knowledge, experience and training in the application of U.S.      GAAP commensurate with the Company’s financial requirements. Additionally,      the Company’s senior management lacked an adequate level of accounting      knowledge, experience and training in the application of U.S. GAAP, and      did not implement adequate and proper supervisory review to ensure the      consolidated financial statements were prepared in conformity with U.S.      GAAP and with requirements of the U.S. Securities and Exchange      Commission. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | The      Company did not maintain effective controls over the accounting for      construction in progress assets and the determination of depreciation      expenses when the assets are ready for their intended use. Specifically,      the Company did not have effective controls to track and assess the      ready-for-intended-use status of the construction in progress assets to      ensure the construction in progress assets being transferred to property,      plant and equipment and the related commencement of depreciation expense      was in accordance with U.S. GAAP. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                    |   | Year ended September 30, |    |
|-----------------------------------------|--------|-----------------------------------------|---------|
|                                    |   | 2008                                    |    |   | 2007 |   |   | 2006 |   |
|                                    |   | (in thousands)                     |    |
| Prismatic      cells                    |   |                                    |    |   |   |   |   |   |   |
| Steel-case      cells                   |   | $                                       | 29,300  |   |   | $ | 34,869 |   |   | $ | 64,299 |   |
| Aluminum-case      cells                |   | $                                       | 130,110 |   |   | $ | 69,916 |   |   | $ | 49,514 |   |
| Battery      packs                      |   | $                                       | 25,500  |   |   | $ | 11,798 |   |   | $ | 9,843 |   |
| Cylindrical      cells                  |   | $                                       | 42,567  |   |   | $ | 3,422 |   |   | $ | 608 |   |
| High-power      lithium-phosphate cells |   | $                                       | -       |   |   | $ | 20,562 |   |   | $ | 18,537 |   |
| Lithium      polymer cells              |   | $                                       | 17,871  |   |   | $ | 5,294 |   |   | $ | 1,028 |   |
| Total                                   |   | $                                       | 245,348 |   |   | $ | 145,861 |   |   | $ | 143,829 |   |

----

----

----

|                                     |   | Fiscal year ended September 30,                    |    |
|------------------------------------------|--------|------------------------------------------------------------------------|---------|
|                                |   | 2008                                                                   |    |   | 2007 |   |   | 2006 |   |
|                                |   | All amounts                                                       |    |   | As apercentage ofnet revenues |   |   | Allamounts |   |   | As apercentageof netrevenues |   |   | Allamounts |   |   | As apercentageof netrevenues |   |
|                                |   | (in thousands of dollars, except percentages) |    |
| Statement of      operations data:  |   |                                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   |                                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      revenues                        |   | $                                                                      | 245,348 |   |   |   | 100 | % |   | $ | 145,861 |   |   |   | 100 | % |   | $ | 143,829 |   |   |   | 100 | % |
|                                     |   |                                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of revenues                    |   | $                                                                      | 214,442 |   |   |   | 87.4 | % |   | $ | 120,255 |   |   |   | 82.4 | % |   | $ | 104,196 |   |   |   | 72.4 | % |
|                                     |   |                                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      profit                        |   | $                                                                      | 30,906  |   |   |   | 12.6 | % |   | $ | 25,606 |   |   |   | 17.6 | % |   | $ | 39,633 |   |   |   | 27.6 | % |
|                                     |   |                                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses:                 |   |                                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Research      and development expenses   |   | $                                                                      | 6,252   |   |   |   | 2.5 | % |   | $ | 3,957 |   |   |   | 2.7 | % |   | $ | 2,935 |   |   |   | 2.0 | % |
| Sales      and marketing expenses        |   | $                                                                      | 5,803   |   |   |   | 2.4 | % |   | $ | 4,696 |   |   |   | 3.2 | % |   | $ | 5,055 |   |   |   | 3.5 | % |
| General      and administrative expenses |   | $                                                                      | 19,347  |   |   |   | 7.9 | % |   | $ | 12,372 |   |   |   | 8.5 | % |   | $ | 9,071 |   |   |   | 6.3 | % |
| Total      operating expenses            |   | $                                                                      | 31,402  |   |   |   | 12.8 | % |   | $ | 21,025 |   |   |   | 14.4 | % |   | $ | 17,061 |   |   |   | 11.9 | % |
|                                     |   |                                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      (loss) / income           |   | $                                                                      | (496    | ) |   |   | (0.2 | )% |   | $ | 4,581 |   |   |   | 3.2 | % |   | $ | 22,572 |   |   |   | 15.7 | % |
|                                     |   |                                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Finance      Costs, Net                  |   | $                                                                      | 11,021  |   |   |   | 4.5 | % |   | $ | 5,225 |   |   |   | 3.6 | % |   | $ | 1,888 |   |   |   | 1.3 | % |
| Other      (income) / expenses           |   | $                                                                      | (757    | ) |   |   | (0.2 | )% |   | $ | 103 |   |   |   | 0.1 | % |   | $ | 205 |   |   |   | 0.1 | % |
| Gain      on trading securities          |   | $                                                                      | -       |   |   |   | - | % |   | $ | - |   |   |   | - |   |   | $ | 279 |   |   |   | 0.2 | % |
| Government      grant income             |   | $                                                                      | 1,774   |   |   |   | 0.7 | % |   | $ | 1,035 |   |   |   | 0.7 | % |   | $ | - |   |   |   | - |   |
| Income      taxes (benefits) / expenses  |   | $                                                                      | (1,045  | ) |   |   | (0.4 | )% |   | $ | (195 | ) |   |   | (0.1 | )% |   | $ | 593 |   |   |   | 0.4 | % |
| Net      (loss) / income                 |   | $                                                                      | (7,941  | ) |   |   | (3.2 | )% |   | $ | 483 |   |   |   | 0.3 | % |   | $ | 20,165 |   |   |   | 14.0 | % |

|   | · | Net      revenues from the sales of steel-case cells decreased to $29.3 million in      the year ended September 30, 2008 from $34.9 million in the same period in      2007, a decrease of $5.6 million or 16.0%, due to our strategic reduction      of steel-case cell production in order to increase our aluminum-case cell      production capacity, to facilitate our transition from the secondary      market to the OEM market, and to capitalize on the greater benefits of      aluminum-case cells. During the year ended September 30, 2008, the price      and profit margin of steel-case cells were lower than those of      aluminum-case cells, and market demand for aluminum-case cells was      stronger than that for steel-case cells. As a result, we expect to      continue to increase our production of aluminum-case cells and decrease      our production of steel-case cells. We expect that this shift will      positively impact our revenue. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Net      revenues from the sales of aluminum-case cells increased to $130.1 million      in the year ended September 30, 2008 from $69.9 million in the same period      in 2007, an increase of $60.2 million or 86.1%, due to a 65.5% increase in      sales volume, driven by increased sales to the OEM market in the PRC, and      a 12.5% increase in our average sellingprice. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Net      revenues from sales of battery packs increased to $25.5 million in year      ended September 30, 2008 from $11.8 million in the same period in 2007, an      increase of $13.7 million or 116.2%, due to a 73.7% increase in sales      volume and a 24.4% increase in average selling price, driven by increased      sales to the OEM market in thePRC. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Net      revenues from the sales of cylindrical cells increased to $42.6 million in      the year ended September 30, 2008 from $3.4 million in the same period in      2007, an increase of $39.2 million or 1143.9%, due to a 213.1% increase in      sales volume and a 70.5% increase in average selling price, driven by      increased exports. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We      also sold $17.9 million of lithium polymer cells for the year ended      September 30, 2008, compared to $5.3 million of lithium polymer cells in      the same period in 2007, an increase of $12.6 million or 237.5%, due to      our ability to meet additional demand by increasing      production. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We      had no sales of high-power lithium-ion for the year ended September 30,      2008, compared to $20.6 million in the same period in 2007, primarily due      to the termination of our manufacturing agreement with A123Systems in      August 2007. We are actively seeking new markets; such as the markets for      mining lamps, hybrid electric vehicles; and light electric vehicles, for      our high-power lithium-ion cells. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | Net      revenues from the sales of steel-case cells decreased to $34.9 million in      the year ended September 30, 2007 from $64.3 million in the same period in      2006, a decrease of $29.4 million or 45.7%.  During fiscal year      2007, we gradually decreased the production of steel-case cells and      increased the production of aluminum-case cells, primarily due to the      price difference and market demand.  The price and profit margin      of steel-case cells were lower than those of aluminum-case      cells.  In addition, market demand for aluminum-case cells was      stronger than for steel-case cells because of the former’s higher safety      and performance as compared to steel-casecells. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Net      revenues from the sales of aluminum-case cells increased to $69.9 million      in the year ended September 30, 2007 from $49.5 million in the same period      in 2006, an increase of $20.4 million or 41.2%, due to an increase in      sales volume of 28.3% driven by increased sales to OEM market in the PRC      and an increase in average selling price of 10.1% as the result of a      change in the type of the aluminum-casecells. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Net      revenues from sales of battery packs increased to $11.8 million in year      ended September 30, 2007 from $9.8 million in the same period in 2006, due      to an increase in sales volume of 47.8% driven by increased sales to the      OEM market in the PRC and offset by a decrease in our average selling      price of 18.9%. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Net      revenues from the sales of high-power lithium-ion cells increased to $20.6      million in the year ended September 30, 2007 from $18.5 million in the      same period in 2006, an increase of $2.0 million or 10.9%, due to an      increase in sales volume of 32.7% driven by increased export sales and      offset by a decrease in average selling price of  16.4%. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We      also sold $5.3 million of lithium polymer cells and $3.4 million of      cylindrical cells in the year ended September 30, 2007, compared to $1.0      million of lithium polymer cells and $608,000 of cylindrical cells in the      same period in 2006 due to our ability to satisfy additional demand with      our new production line. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                              |   | Year ended September 30, |    |
|-------------------------------------------------------------------|--------|-----------------------------------------|---------|
|                                                         |   | 2008                                    |    |   | 2007 |   |   | 2006 |   |
|                                                         |   | (In thousands)                     |    |
| Net cash      provided by / (used in) operating activities   |   | $                                       | 2,704   |   |   | $ | 2,986 |   |   | $ | (5,685 | ) |
| Net      cash used in investing activities                        |   | $                                       | (50,551 | ) |   | $ | (65,895 | ) |   | $ | (41,416 | ) |
| Net      cash provided by financing activities                    |   | $                                       | 67,164  |   |   | $ | 55,244 |   |   | $ | 35,047 |   |
| Effect      of exchange rate changes on cash and cash equivalents |   | $                                       | 2,193   |   |   | $ | 762 |   |   | $ | 98 |   |
| Net      increase/(decrease) in cash and cash equivalents         |   | $                                       | 21,510  |   |   | $ | (6,903 | ) |   | $ | (11,956 | ) |
| Cash      and cash equivalents at the beginning of period         |   | $                                       | 14,197  |   |   | $ | 21,100 |   |   | $ | 33,056 |   |
| Cash      and cash equivalents at the end of period               |   | $                                       | 35,707  |   |   | $ | 14,197 |   |   | $ | 21,100 |   |

----

|                                             |   | MaximumAmountAvailable |    |   | AmountBorrowed(Includebank loansand billspayable) |   |
|--------------------------------------------------|--------|------------------------|---------|--------|-------------------------------------------------------------|--------|
|                                             |   | (in thousands)    |    |
| Short-term      credit facilities:               |   |                   |    |   |                                                        |   |
| Agricultural      Bank of China                  |   | $                      | 25,666  |   |                                                        | $      | 25,666 |   |
| Shenzhen      Development Bank                   |   |                   | 22,000  |   |                                                        |   | 22,000 |   |
| Shenzhen      Ping An Bank                       |   |                   | 8,067   |   |                                                        |   | 8,067 |   |
| China      CITIC Bank                            |   |                   | 21,999  |   |                                                        |   | 14,666 |   |
| Industrial      Bank                             |   |                   | 9,167   |   |                                                        |   | 7,333 |   |
| Bank      of China                               |   |                   | 65,999  |   |                                                        |   | 34,434 |   |
| Subtotal—short-term      credit facilities |   | $                      | 152,898 |   |                                                        | $      | 112,166 |   |
|                                             |   |                   |    |   |                                                        |   |   |   |
| Long-term      credit facilities:                |   |                   |    |   |                                                        |   |   |   |
| Agricultural      Bank of China                  |   |                   | 52,799  |   |                                                        |   | 49,866 |   |
| China      Development Bank                      |   |                   | 14,666  |   |                                                        |   | 14,666 |   |
|                                             |   |                   |    |   |                                                        |   |   |   |
| Subtotal—long-term      credit facilities  |   | $                      | 67,465  |   |                                                        | $      | 64,532 |   |
|                                             |   |                   |    |   |                                                        |   |   |   |
| Lines      of Credit:                            |   |                   |    |   |                                                        |   |   |   |
| Agricultural      Bank of China                  |   |                   |    |   |                                                        |   | 1,272 |   |
| Bank      of China                               |   |                   |    |   |                                                        |   | 5,509 |   |
|                                             |   |                   |    |   |                                                        |   |   |   |
| Subtotal-lines      of credit                    |   |                   |    |   |                                                        | $      | 6,781 |   |
|                                             |   |                   |    |   |                                                        |   |   |   |
|                                             |   |                   |    |   |                                                        |   |   |   |
| Total      Principal Outstanding                 |   | $                      | 220,363 |   |                                                        | $      | 183,479 |   |

----

----

|   | · | RMB      30 million (approximately $4.4 million) on November 20,    2008; |
|--------|--------|---------------------------------------------------------------------------|

|   | · | RMB      30 million (approximately $4.4 million) on November 20, 2009;      and |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | RMB      40 million (approximately $5.9 million) on December 26,    2010. |
|--------|--------|---------------------------------------------------------------------------|

----

|                           |   | Year ended September 30, |   |
|--------------------------------|--------|-----------------------------------------|--------|
|                           |   | 2008                                    |   |   | 2007 |   |   | 2006 |   |
|                           |   | (In thousands)                     |   |
| Construction      costs        |   |                                    | 16,807 |   |   |   | 16,118 |   |   |   | 13,670 |   |
| Lease      prepayment          |   |                                    | 5,455  |   |   |   | 17,042 |   |   |   | - |   |
| Purchase      of equipment     |   |                                    | 28,966 |   |   |   | 32,675 |   |   |   | 27,712 |   |
|                           |   |                                    |   |   |   |   |   |   |   |   |   |   |
| Total      capital expenditure |   |                                    | 51,228 |   |   |   | 65,835 |   |   |   | 41,382 |   |

----

|                                                  |   | Payment Due by Period |    |
|-------------------------------------------------------|--------|-----------------------|---------|
|                                                  |   | Total                 |    |   | Less than 1year |   |   | 1-3years |   |   | 3-5years |   |   | Morethan 5years |   |
| (In      thousands)                                   |   |                  |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term      bank loans                            |   |                  | 105,598 |   |   |   | 105,598 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Bills      payable                                    |   |                  | 13,334  |   |   |   | 13,334 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Long-term      bank loans                             |   |                  | 64,532  |   |   |   | 8,800 |   |   |   | 33,733 |   |   |   | 21,999 |   |   |   | - |   |
| Capital      commitments                              |   |                  | 10,271  |   |   |   | 10,271 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Future      interest payment on short-term bank loans |   |                  | 2,597   |   |   |   | 2,597 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Future      interest payment on long-term bank loans  |   |                  | 10,325  |   |   |   | 3,671 |   |   |   | 5,543 |   |   |   | 1,111 |   |   |   | - |   |
| Total                                                 |   |                  | 206,657 |   |   |   | 144,271 |   |   |   | 39,276 |   |   |   | 23,110 |   |   |   | - |   |

----

----

----

----

|                                                                                                                                                                                                 |   | RMB      per U.S. Dollar |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|
|                                                                                                                                                                                                 |   | 2008                     |   |   | 2007 |   |   | 2006 |   |
| Balance      sheet items as of September 30                                                                                                                                                          |   |                     | 6.8183 |   |   |   | 7.5108 |   |   |   | 7.9087 |   |
|                                                                                                                                                                                                 |   |                     |   |   |   |   |   |   |   |   |   |   |
| Amounts      included in the statement of income and comprehensive income, statement of      changes in stockholders’ equity and statement of cash flows for the years      ended September 30 |   |                     | 7.0976 |   |   |   | 7.7127 |   |   |   | 8.0286 |   |

----

| ITEM      7A. | QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK. |
|---------------|-----------------------------------------------------------------|

| ITEM      8. | FINANCIAL      STATEMENTS AND SUPPLEMENTARY DATA. |
|--------------|---------------------------------------------------|

|                                                              |   | Sep 302008                                                                 |   |   | June302008 |   |   | Mar 312008 |   |   | Dec 312007 |   |   | Sep 302007 |   |   | June302007 |   |   | Mar312007 |   |   | Dec312006 |   |
|-------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|--------|------------|--------|--------|-----------------|--------|--------|-----------------|--------|--------|-----------------|--------|--------|------------|--------|--------|-----------|--------|--------|-----------|--------|
|                                                              |   | USD (in thousands, except percentage) / Unaudited |   |
| Net      revenues                                                 |   |                                                                            | 72,739 |   |       |   | 68,486 |            |   |   | 51,336          |   |   |            | 52,787 |   |       |   | 43,772 |      |   |   | 29,477    |   |   |   | 29,529 |   |   |   | 43,082 |   |
| Cost      of revenues                                             |   |                                                                            | 61,258 |   |       |   | 60,082 |            |   |   | 47,421          |   |   |            | 45,681 |   |       |   | 37,571 |      |   |   | 24,415    |   |   |   | 23,383 |   |   |   | 34,885 |   |
|                                                              |   |                                                                            |   |   |       |   |   |            |   |   |            |   |   |            |   |   |       |   |   |      |   |   |      |   |   |   |   |   |   |   |   |   |
| Gross      profit                                                 |   |                                                                            | 11,481 |   |       |   | 8,404  |            |   |   | 3,915           |   |   |            | 7,106  |   |       |   | 6,201  |      |   |   | 5,063     |   |   |   | 6,146 |   |   |   | 8,197 |   |
| Gross      profit ratio                                           |   |                                                                            | 15.8   | %      |       |   | 12.3   | %               |   |   | 7.6             | %      |   |            | 13.5   | %      |       |   | 14.2   | %         |   |   | 17.2      | %      |   |   | 20.8 | % |   |   | 19.0 | % |
| Research      and development expenses                            |   |                                                                            | 1,688  |   |       |   | 1,855  |            |   |   | 1,390           |   |   |            | 1,319  |   |       |   | 1,274  |      |   |   | 1,118     |   |   |   | 928 |   |   |   | 637 |   |
| Sales      and ,marketing expenses                                |   |                                                                            | 1,568  |   |       |   | 1,484  |            |   |   | 1,403           |   |   |            | 1,348  |   |       |   | 1,424  |      |   |   | 1,165     |   |   |   | 1,064 |   |   |   | 1,042 |   |
| General      and administrative expenses                          |   |                                                                            | 5,186  |   |       |   | 5,101  |            |   |   | 4,823           |   |   |            | 4,238  |   |       |   | 3,070  |      |   |   | 4,189     |   |   |   | 2,152 |   |   |   | 2,961 |   |
| Operating      income / (loss)                                    |   |                                                                            | 3,039  |   |       |   | (36    | )               |   |   | (3,701          | )      |   |            | 201    |   |       |   | 433    |      |   |   | (1,409    | )      |   |   | 2,002 |   |   |   | 3,557 |   |
| Finance      costs, net                                           |   |                                                                            | 3,644  |   |       |   | 2,736  |            |   |   | 2,418           |   |   |            | 2,223  |   |       |   | 2,089  |      |   |   | 1,069     |   |   |   | 1,164 |   |   |   | 901 |   |
| Other      (income, including government grant income) / expenses |   |                                                                            | (1,081 | )      |       |   | (453   | )               |   |   | (55             | )      |   |            | (943   | )      |       |   | (329   | )         |   |   | 90        |   |   |   | 240 |   |   |   | (932 | ) |
| Income      / (loss) before income taxes                          |   |                                                                            | 476    |   |       |   | (2,319 | )               |   |   | (6,064          | )      |   |            | (1,079 | )      |       |   | (1,327 | )         |   |   | (2,570    | )      |   |   | 598 |   |   |   | 3,588 |   |
| Income      taxes (benefits) / expenses                           |   |                                                                            | (994   | )      |       |   | (31    | )               |   |   | 119             |   |   |            | (139   | )      |       |   | (477   | )         |   |   | 120       |   |   |   | 158 |   |   |   | 5 |   |
|                                                              |   |                                                                            |   |   |       |   |   |            |   |   |            |   |   |            |   |   |       |   |   |      |   |   |      |   |   |   |   |   |   |   |   |   |
| Net      income/ (loss)                                           |   |                                                                            | 1,470  |   |       |   | (2,288 | )               |   |   | (6,183          | )      |   |            | (940   | )      |       |   | (850   | )         |   |   | (2,690    | )      |   |   | 440 |   |   |   | 3,583 |   |

----

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

----

| ITEM      9A. | CONTROLS      AND PROCEDURES. |
|---------------|-------------------------------|

----

|   | · | The      Company did not maintain effective controls over the financial reporting      process due to an insufficient complement of personnel with a level of      accounting knowledge, experience and training in the application of U.S.      GAAP commensurate with the Company’s financial requirements. Additionally,      the Company’s senior management lacked an adequate level of accounting      knowledge, experience and training in the application of U.S. GAAP, and      did not implement adequate and proper supervisory review to ensure the      consolidated financial statements were prepared in conformity with U.S.      GAAP and with requirements of the U.S. Securities and Exchange      Commission. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      Company did not maintain effective controls over the accounting for      construction in progress assets and the determination of depreciation      expenses when the assets are ready for their intended use. Specifically,      the Company did not have effective controls to track and assess the      ready-for-intended-use status of the construction in progress assets to      ensure the construction in progress assets being transferred to property,      plant and equipment and the related commencement of depreciation expense      was in accordance with U.S. GAAP. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | i) | We      will provide additional training to finance managers to review any      applicable accounting entry and time of  transfer; |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------|

|   | ii) | We      will further train our finance department to transfer construction in      progress to cost of property, plant and equipment when it is ready for its      intended use, at which time depreciation charges shall commence thereon.      The criteria used to determine when an asset is ready for intended use      shall be based on policies that are consistent with U.S.    GAAP. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | The      Company did not maintain effective controls over the financial reporting      process due to an insufficient complement of personnel with a level of      accounting knowledge, experience and training in the application of U.S.      GAAP commensurate with the Company’s financial requirements. Additionally,      the Company’s senior management lacked an adequate level of accounting      knowledge, experience and training in the application of U.S. GAAP, and      did not implement adequate and proper supervisory review to ensure the      consolidated financial statements were prepared in conformity with U.S.      GAAP and with requirements of U.S. Securities and Exchange      Commission. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      Company did not maintain effective controls over the accounting for      construction in progress assets and the determination of depreciation      expenses when the assets are ready for their intended use. Specifically,      the Company did not have effective controls to track and assess the      ready-for-intended-use status of the construction in progress assets to      ensure the construction in progress assets being transferred to property,      plant and equipment and the related commencement of depreciation expense      was in accordance with U.S. GAAP. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ITEM      9B. | OTHER      INFORMATION. |
|---------------|-------------------------|

| ITEM      10. | DIRECTORS,      EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE. |
|---------------|-------------------------------------------------------------|

| Name                      |   | Age    |   | Position Held                                                 |
|---------------------------|--------|--------|--------|--------------------------------------------------------------------|
|                      |   |   |   |                                                               |
| Xiangqian      Li         |   | 40     |   | Chairman,      President and Chief Executive Officer               |
| Tony      Shen            |   | 41     |   | Chief      Financial Officer, Secretary and Treasurer              |
| Huanyu      Mao           |   | 56     |   | Director,      Chief Operating Officer and Chief Technical Officer |
| Richard      B. Goodner   |   | 62     |   | Director                                                           |
| Charlene      Spoede Budd |   | 69     |   | Director                                                           |
| Chunzhi      Zhang        |   | 46     |   | Director                                                           |
| Xinggang      Cao         |   | 34     |   | Vice      President                                                |
| Kenneth      G. Broom     |   | 53     |   | Vice      President                                                |

----

----

----

| ITEM      11. | EXECUTIVE      COMPENSATION. |
|---------------|------------------------------|

----

----

| Name      and PrincipalPosition                       |   | Year   |   | Salary($) |    |   | Stock      Awards($)      (1) |   |   | OptionAwards      ($)(1) |   |   | Total      ($) |   |
|-------------------------------------------------------|--------|--------|--------|-----------|---------|--------|-------------------------------|--------|--------|--------------------------|--------|--------|----------------|--------|
|                                                  |   |   |   |      |    |   |                          |   |   |                     |   |   |           |   |
| Xiangqian      Li, President, Chief Executive Officer |   | 2008   |   |      | 35,199  |   |                          |   | -      |                     |   |   | 769,324        |   |   |   | 804,523 |   |
|                                                  |   | 2007   |   |      | 31,953  |   |                          |   | -      |                     |   |   | -              |   |   |   | 31,953 |   |
|                                                  |   | 2006   |   |      | 29,893  |   |                          |   | -      |                     |   |   | -              |   |   |   | - |   |
|                                                  |   |   |   |      |    |   |                          |   |   |                     |   |   |           |   |   |   |   |   |
| Tony      Shen, Chief Financial Officer               |   | 2008   |   |      | 28,160  |   |                          |   | -      |                     |   |   | 298,977        |   |   |   | 327,137 |   |
|                                                  |   | 2007   |   |      | 8,521   |   |                          |   | -      |                     |   |   | 74,095         |   |   |   | 82,616 |   |
|                                                  |   | 2006   |   |      | -       |   |                          |   | -      |                     |   |   | -              |   |   |   | - |   |
|                                                  |   |   |   |      |    |   |                          |   |   |                     |   |   |           |   |   |   |   |   |
| Huanyu      Mao                                       |   | 2008   |   |      | 31,679  |   |                          |   | -      |                     |   |   | 452,470        |   |   |   | 484,149 |   |
|                                                  |   | 2007   |   |      | 27,655  |   |                          |   | -      |                     |   |   | 257,391        | (2)    |   |   | 319,855 |   |
|                                                  |   | 2006   |   |      | 27,655  |   |                          |   | -      |                     |   |   | 401,874        |   |   |   | 429,529 |   |
|                                                  |   |   |   |      |    |   |                          |   |   |                     |   |   |           |   |   |   |   |   |
| Kenneth      G. Broom                                 |   | 2008   |   |      | 247,775 |   |                          |   | -      |                     |   |   | 206,195        |   |   |   | 453,970 |   |
|                                                  |   | 2007   |   |      | 186,904 |   |                          |   | -      |                     |   |   | 12,913         |   |   |   | 199,817 |   |
|                                                  |   | 2006   |   |      | -       |   |                          |   | -      |                     |   |   | -              |   |   |   | - |   |

----

|   (1) | The      amounts represented in the stock and option awards columns reflect the      compensation expense recognized by the Company in fiscal year 2008      determined pursuant to SFAS 123R, and no forfeitures are assumed. The      assumptions used to calculate the value of option and restricted stock      awards are set forth under Note 18 of the Notes to Consolidated Financial      Statements. Also see “Grants of Plan-Based Awards Table” for more detail      regarding equity grants to named executive officers in fiscal year      2007. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (2) | This      amount reflects the compensation expense recognized by the Company in      fiscal year 2007 determined pursuant to SFAS 123R related to the May 16,      2005 award of stock options to Dr.Mao. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

----

|   | · | approach      our clients, customers or contacts or other persons or entities, and not      to interfere with the business relationship between us and such persons      and/or entities; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | assume      employment with or provide services as a director for any of our      competitors, or engage in any business which is in direct or indirect      competition with our business; or |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | solicit      the services of any of ouremployees. |
|--------|--------|---------------------------------------------------|

| Name                      |   | Grant      Date            |   | All      Other StockAwards:Number      ofShares      of Stockor      Units (#) |   |   | All      Other OptionAwards:      Number of      SecuritiesUnderlyingOptions      (#)      (1) |   |      | Exercise      orBase      Price ofOptionAwards($/share) |   |   | Grant      DateFair      Valueof      Stockand      OptionsAwards |   |   | ClosingPrice      onGrantDate($/share) |      |
|---------------------------|--------|----------------------------|--------|--------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------|--------|-----------|---------------------------------------------------------|--------|--------|-------------------------------------------------------------------|--------|--------|----------------------------------------|-----------|
| Xiangqian      Li (2)     |   | May 29, 2008     |   |                                                                           | -      |   |                                                                                           |   | 1,080,000 |                                                    |   |   | 4.18                                                              | (2)    |   |                                   | 2,545,645 |   |   |   | 4.19 |   |
| Tony      Shen (3)        |   | January 28, 2008 |   |                                                                           | -      |   |                                                                                           |   | 120,000   |                                                    |   |   | 4.30                                                              |   |   |                                   | 431,277   |   |   |   | 4.30 |   |
| Huanyu      Mao (4)       |   | January 28, 2008 |   |                                                                           | -      |   |                                                                                           |   | 200,000   |                                                    |   |   | 4.30                                                              |   |   |                                   | 718,795   |   |   |   | 4.30 |   |
| Kenneth      G. Broom (5) |   | January 28, 2008 |   |                                                                           | -      |   |                                                                                           |   | 40,000    |                                                    |   |   | 4.30                                                              |   |   |                                   | 143,759   |   |   |   | 4.30 |   |

----

| (1)  | Grants      under the Stock Option Plan are also described in the Outstanding Equity      Awards at Fiscal Year-End Tablebelow. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------|

----

| (2) | Mr.      Li was conditionally granted an option to purchase 1,080,000 shares of our      common stock on May 29, 2008 under the Stock Option Plan.  The      issuance of the option was subject to shareholder approval of the      amendment of the Stock Option Plan to increase the number of shares      available for issuance thereunder.  On July 28, 2008, our      shareholders approved certain amendments to the Stock Option Plan,      including an amendment increasing the total number of shares available for      issuance under the Plan from 4,000,000 to 8,000,000.  As a      result, Mr. Li became entitled to the option.  The option is      subject to a three-year vesting schedule, with the first 1/12 vesting on      the last day of the full fiscal quarter following the date of grant      (September 30, 2008), and the remaining 11/12 vesting in eleven equal      installments on the last day of each following fiscal      quarter.  The exercise price, $4.18, is equal to the average      closing price of the five trading days preceding May 29, 2008, the date      the grant was conditionally approved.  The option expires on May      28, 2013. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|    |   |
|--------------|--------|

| (3) | Mr.      Shen was granted an option to purchase 120,000 shares of our common stock      on January 28, 2008 under the Stock Option Plan.  The option      vests and becomes exercisable over a three-year period with the option      vesting and becoming exercisable as to 1/12 of the total shares every      three months beginning on April 28, 2008.  The option’s exercise      price is $4.30.  The option expires on January 28,      2013. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (4) | Dr.      Mao was granted an option to purchase 200,000 shares of our common stock      on January 28, 2008 under the Stock Option Plan.  The option      vests and becomes exercisable in 12 installments over a three-year period      as follows: The option was to vest and become exercisable as to 16,667      shares on April 28, 2008 and as to an additional 16,667 shares each three      months thereafter beginning on July 28, 2008, through October 28, 2010,      and as to the final 16,663 shares on January 28, 2011.  The      option’s exercise price is $4.30.  The option expires on January      28, 2013. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|    |   |
|--------------|--------|

| (5) | Mr.      Broom was granted an option to purchase 40,000 shares of our common stock      on January 28, 2008 under the Stock Option Plan.  The option      vests and becomes exercisable in 12 installments over a three-year period      as follows: The option was to vest and become exercisable as to 3,334      shares on April 28, 2008 and as to an additional 3,334 shares each three      months thereafter beginning on July 28, 2008, through October 28, 2010,      and as to the final 3,326 shares on January 28, 2011.  The      option’s exercise price is $4.30.  The option expires on January      28, 2013. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Option Awards        |   | Stock Awards                                                        |
|---------------------------|--------|--------------------------------------------------------------------------|
| Name                      |   | Number ofSecuritiesUnderlyingUnexercisedOptions (#)Exercisable |   |   | Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable |   |   | Option ExercisePrice ($) |   | OptionExpirationDate |   | Number ofShares orUnits ofStock ThatHave NotVested (#) |   | Market Valueof Shares orUnits of StockThat HaveNot Vested($) |
|                      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Xiangqian      Li (1)     |   |                                                                     | 90,000 |   |   |   | 990,000 |   |   |   | 4.18 |   | May      28, 2013 |   |   |   |   |
| Tony      Shen (2)        |   |                                                                     | 60,000 |   |   |   | 20,000 |   |   |   | 3.35 |   | May      13, 2012  |   |   |   |   |
|                      |   |                                                                     | 20,000 |   |   |   | 100,000 |   |   |   | 4.30 |   | January      28, 2013 |   |   |   |   |
| Huanyu      Mao (3)       |   |                                                                     | 200,000 |   |   |   | - |   |   |   | 6.25 |   | May      16, 2011 |   |   |   |   |
|                      |   |                                                                     | 33,334 |   |   |   | 166,666 |   |   |   | 4.30 |   | January      28, 2013 |   |   |   |   |
| Kenneth      G. Broom (4) |   |                                                                     | 6,668 |   |   |   | 33,332 |   |   |   | 4.30 |   | January      28, 2013 |   |   |   |   |
|                      |   |                                                                     | 25,000 |   |   |   | 75,000 |   |   |   | 3.268 |   | July      1, 2013 |   |   |   |   |

| (1)  | Mr.      Li was conditionally granted an option to purchase 1,080,000 shares of our      common stock on May 29, 2008 under the Stock Option Plan.  The      issuance of the option was subject to shareholder approval of the      amendment of the Stock Option Plan to increase the number of shares      available for issuance thereunder.  On July 28, 2008, our      shareholders approved certain amendments to the Stock Option Plan,      including an amendment increasing the total number of shares available for      issuance under the Plan from 4,000,000 to 8,000,000.  As a      result, Mr. Li became entitled to the option.  The option is      subject to a three-year vesting schedule, with the first 1/12 vesting on      the last day of the full fiscal quarter following the date of grant      (September 30, 2008), and the remaining 11/12 vesting in eleven equal      installments on the last day of each following fiscal      quarter.  The exercise price, $4.18, is equal to the average      closing price of the five trading days preceding May 29, 2008, the date      the grant was conditionally approved.  The option expires on May      28, 2013. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (2) | On      June 25, 2007, Mr. Shen was granted an option to purchase 80,000 shares of      Common Stock at a price of $3.35 per share. The option vests over two      years, with 10,000 shares vesting on the last day of each fiscal quarter      following the grant date, with the first vesting date occurring on June      30, 2007. On January 28, 2008, Mr. Shen was granted an option to purchase      120,000 shares of Common Stock at a price of $4.30 per share. The option      vests and becomes exercisable over a three-year period with the option      vesting and becoming exercisable as to 1/12 of the total shares every      three months beginning on April 28,2008. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Dr.      Mao was granted an option to purchase 200,000 shares of Common Stock on      May 16, 2005, at a price of $6.25 per share, 40% of which vested on July      1, 2007, an additional 30% of which vested on January 1, 2008, and the      final 30% of which vested on July 1, 2008. Any unvested portion of the      option is subject to forfeiture if Dr. Mao is no longer employed by the      Company. On January 28, 2008, Dr. Mao was granted an option to purchase an      additional 200,000 shares of Common Stock at a price of $4.30 per share.      The option vests and becomes exercisable in 12 installments over a      three-year period as follows: the first 16,667 shares on April 28, 2008,      an additional 16,667 shares each three months thereafter beginning on July      28, 2008, through October 28, 2010, and the final 16,663 shares on January      28, 2011. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | On      June 25, 2007, Mr. Broom was granted an option to purchase 100,000 shares      of Common Stock at a price of $3.268 per share. The option vests over four      years, with 25,000 shares vesting on July 1 of each year and with the      first vesting date occurring on July 1, 2008. On January 28, 2008, Mr.      Broom was granted an option to purchase 40,000 shares of Common Stock at a      price of $4.30 per share. The option vests and becomes exercisable in 12      installments over a three-year period as follows: the first 3,334 shares      on April 28, 2008, an additional 3,334 shares each three months thereafter      beginning on July 28, 2008, through October 28, 2010, and the final 3,326      shares on January 28, 2011. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Name                  |   | TerminationWithout Cause($) |   |   | Change inControl (1)($) |   |
|-----------------------|--------|----------------------------------|--------|--------|-----------------------------------|--------|
| Xiangqian      Li     |   |                             | 8,800  | (2)    |                              |   | - |   |
| Tony      Shen        |   |                             | 4,693  | (3)    |                              |   | 19,996.65 |   |
| Huanyu      Mao       |   |                             | 7,920  | (2)    |                              |   | - |   |
| Kenneth      G. Broom |   |                             | 61,943 | (4)    |                              |   | 24,900 |   |

----

| (1)  | Amounts      in this column reflect the value of unvested options that would be      accelerated upon (i) a change of control if the options are not assumed by      the successor corporation and (ii) involuntary termination within 18      months following a change in control in which the named executive      officer’s options were assumed or replaced. Amounts are calculated based      on (i) the difference between (a) the closing market price of a share of      the Company’s common stock on September 30, 2008 and (b) the exercise      price per share for an option grant (ii) multiplied by the number of      shares subject to the option grant. There is no acceleration of restricted      shares. |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (2)   | In      accordance with their employment agreements, Messrs. Li and Mao, if      terminated without cause on the last day of the fiscal year, would have      been entitled to three months of salary  continuation. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (3) | In      accordance with his employment agreement, Mr. Shen, if terminated without      cause on the last day of the fiscal year, would have been entitled to two      months of salary continuation. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (4) | The      amount is equal to the amount Mr. Broom would be paid if he continued to      be employed for the remainder of the term of his employment      agreement. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| Name                      |   | Fees Earned orPaid in Cash ($) |   |   | Stock Awards($)(1) |   |   | Total ($) |   |
|---------------------------|--------|---------------------------------------------------------|--------|--------|-------------------------|--------|--------|----------------|--------|
| Charlene      Spoede Budd |   |                                                    | 25,000 |   |                    |   | 22,800 | (2)            |   |   | 47,800 |   |
| Chunzhi      Zhang        |   |                                                    | 20,000 |   |                    |   | 22,800 | (2)            |   |   | 42,800 |   |
| Richard      B. Goodner   |   |                                                    | 20,000 |   |                    |   | 22,800 | (2)            |   |   | 42,800 |   |

----

| (1) | The      amounts represented in the stock awards column reflect the compensation      expense recognized by the Company in fiscal year 2008 determined pursuant      to SFAS 123R, and no forfeitures are assumed. The assumptions used to      calculate the value of the restricted stock awards are set forth under      Note 18 of the Notes to Consolidated Financial  Statements. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)  | Granted      5,000 shares of our restricted common stock on August 6,    2008. |
|-----------|--------------------------------------------------------------------------------|

----

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

|                                                            |   | Number of securitiesto be issued uponexercise ofoutstanding options,restricted stock,warrants and rights (a) |      |   | Weighted-averageexercise price ofoutstandingoptions, restrictedstock, warrants andrights (b) |   |   | Number of securitiesremaining available for futureissuance under equitycompensation plans(excluding securities reflectedin column (a)) (c) |   |
|-----------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|--------|----------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Equity      compensation plans approved by security holders     |   |                                                                                                                                                                | 3,121,250 | (1)    |                                                                                                                       | $      | 3.90   |                                                                                                                                                                                                        |   |   | 3,652,506 | (1) |
|                                                            |   |                                                                                                                                                                |      |   |                                                                                                                       |   |   |                                                                                                                                                                                                        |   |   |   |   |
| Equity      compensation plans not approved by security holders |   |                                                                                                                                                                | -         |   |                                                                                                                       |   | -      |                                                                                                                                                                                                        |   |   | - |   |
|                                                            |   |                                                                                                                                                                |      |   |                                                                                                                       |   |   |                                                                                                                                                                                                        |   |   |   |   |
| Total                                                           |   |                                                                                                                                                                | 3,121,250 | (1)    |                                                                                                                       | $      | 3.90   |                                                                                                                                                                                                        |   |   | 3,652,506 | (1) |

----

| (1) | We      granted options to purchase a total of 2,000,000 shares of common stock in      May 2005. Of these options, options in respect of 170,000 shares of common      stock were cancelled as of October 1, 2005. In the fiscal quarter ended      September 30, 2007, options to purchase 30,000 shares of our common stock      were cancelled. In each case, the holders of the options terminated their      employment with us. On September 22, 2006, the Compensation Committee      approved the form of Termination and Release Agreement for cancellation of      1,400,000 shares of stock options granted to the optionees who are      residents of the PRC.  The Compensation Committee also consented      to adopt the terms and provisions of the form of Restricted Stock Grant      Agreement for the issuance of restricted shares and met during the first      quarter of fiscal year 2007 to determine an appropriate number of shares      of restricted stock that would be granted to these optionees under the      Plan (the “Replacement Awards”).  The fair value of the      Replacement Awards to be granted to each optionee would approximate that      of the stock options given up by each optionee. The Replacement Awards      would be classified as liability-classified awards until such time that      the number of shares was determined. On September 28, 2006, options to      purchase a total of 1,400,000 shares of our common stock were cancelled      pursuant to termination and release agreements signed on that day. On      December 26, 2006, pursuant to the restricted stock grant agreements      signed between the Company and the respective optionees and based on the      closing market price of the Company’s listed common stock on that day, a      total of 914,994 shares of restricted stock were granted as Replacement      Awards to the employees who gave up their stock options and continued to      be employed by the Company on that date pursuant to restricted stock grant      agreements. The fair value of the Replacement Awards granted to each      optionee approximated that of such employee’s terminated stock options.      The Compensation Committee ratified such grants on January 15, 2007. On      June 25, 2007, the Company also issued 1,501,500 options to 111 employees      pursuant to the Stock Option Plan. In accordance with the vesting      provisions of the grants, the options were to become vested and      exercisable during the period from June 30, 2007 to February 9, 2012      according to each employee’s respective agreement. On January 28, 2008,      the Company also issued options to purchase 360,000 shares of our common      stock to three executive officers pursuant to the Stock Option Plan. In      accordance with the vesting provisions of the grants, each option vests      and becomes exercisable over a three-year period with the option vesting      and becoming exercisable as to 1/12 (or approximately 1/12) of the total      shares every three months beginning on April 28, 2008. The expiration date      of each option is January 28, 2013. In addition, on May 29, 2008, the      Company conditionally granted Mr. Xiangqian Li an option to purchase      1,080,000 shares of our common stock under the Stock Option      Plan.  The issuance of the option was subject to shareholder      approval of the amendment of the Stock Option Plan to increase the number      of shares available for issuance thereunder. Subsequently, an amendment      increasing the maximum number of shares of common stock that may be issued      and sold under the Stock Option Plan from 4,000,000 to 8,000,000 was      approved at the annual shareholders meeting of the Company held on July      28, 2008, and ratified by the Compensation Committee on August 22, 2008.      The material terms of our Stock Option Plan are summarized      below. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | non-qualified      stock options |
|--------|--------|----------------------------------|

|   | · | restricted      stock |
|--------|--------|-----------------------|

----

|                                                         |   | Amount and Nature of BeneficialOwnership(1) |       |
|--------------------------------------------------------------|--------|-----------------------------------------------------------------|------------|
| Name of Beneficial Owner                      |   | Number of Shares(2)                                   |       |   | Percent of VotingStock (3) |   |
| Invesco      PowerShares Capital Management LLC              |   |                                                            | 3,941,524  | (4) |   |   | 6.8 | % |
| 1360      Peachtree Street NE                                |   |                                                            |       |   |   |   |   |   |
| Atlanta,      GA 30309                                       |   |                                                            |       |   |   |   |   |   |
|                                                         |   |                                                            |       |   |   |   |   |   |
| Xiangqian      Li                                            |   |                                                            | 19,143,887 | (5) |   |   | 33.1 | % |
| BAK      Industrial Park, No. 1 BAK Street                   |   |                                                            |       |   |   |   |   |   |
| Kuichong      Town                                           |   |                                                            |       |   |   |   |   |   |
| Longgang      District, Shenzhen                             |   |                                                            |       |   |   |   |   |   |
| People’s      Republic of China                        |   |                                                            |       |   |   |   |   |   |
|                                                         |   |                                                            |       |   |   |   |   |   |
| Huanyu      Mao                                              |   |                                                            | 250,001    | (6) |   |   | * |   |
| BAK      Industrial Park, No. 1 BAK Street                   |   |                                                            |       |   |   |   |   |   |
| Kuichong      Town                                           |   |                                                            |       |   |   |   |   |   |
| Longgang      District, Shenzhen                             |   |                                                            |       |   |   |   |   |   |
| People’s      Republic of China                        |   |                                                            |       |   |   |   |   |   |
|                                                         |   |                                                            |       |   |   |   |   |   |
| Tony      Shen                                               |   |                                                            | 90,000     | (7) |   |   | * |   |
| BAK      Industrial Park, No. 1 BAK Street                   |   |                                                            |       |   |   |   |   |   |
| Kuichong      Town                                           |   |                                                            |       |   |   |   |   |   |
| Longgang      District, Shenzhen                             |   |                                                            |       |   |   |   |   |   |
| People’s      Republic of China                        |   |                                                            |       |   |   |   |   |   |
|                                                         |   |                                                            |       |   |   |   |   |   |
| Charlene      Spoede Budd                                    |   |                                                            | 10,500     | (8) |   |   | * |   |
| 99      Air Strip Road                                       |   |                                                            |       |   |   |   |   |   |
| Jackson,      Georgia 30233                                  |   |                                                            |       |   |   |   |   |   |
| United      States                                           |   |                                                            |       |   |   |   |   |   |
|                                                         |   |                                                            |       |   |   |   |   |   |
| Chunzhi      Zhang                                           |   |                                                            | 10,000     | (9) |   |   | * |   |
| Room      1505, Block B Tairan 9th Road                      |   |                                                            |       |   |   |   |   |   |
| Chengongmiao,      Futian District                           |   |                                                            |       |   |   |   |   |   |
| Shenzhen      518000                                         |   |                                                            |       |   |   |   |   |   |
| People’s      Republic of China                        |   |                                                            |       |   |   |   |   |   |
|                                                         |   |                                                            |       |   |   |   |   |   |
| Richard      Goodner                                         |   |                                                            | 15,000     | (10) |   |   | * |   |
| 6608      Emerald Drive                                      |   |                                                            |       |   |   |   |   |   |
| Colleyville,      TX 76034                                   |   |                                                            |       |   |   |   |   |   |
| United      States                                           |   |                                                            |       |   |   |   |   |   |
|                                                         |   |                                                            |       |   |   |   |   |   |
| Xinggang      Cao                                            |   |                                                            | 12,291     | (11) |   |   | * |   |
| BAK      Industrial Park, No. 1 BAK Street                   |   |                                                            |       |   |   |   |   |   |
| Kuichong      Town                                           |   |                                                            |       |   |   |   |   |   |
| Longgang      District, Shenzhen                             |   |                                                            |       |   |   |   |   |   |
| People’s      Republic of China                        |   |                                                            |       |   |   |   |   |   |
|                                                         |   |                                                            |       |   |   |   |   |   |
| Kenneth      G. Broom                                        |   |                                                            | 35,002     | (12) |   |   | * |   |
| 31061      Gunn Ave. Mission                                 |   |                                                            |       |   |   |   |   |   |
| B.C.      AI V45157                                          |   |                                                            |       |   |   |   |   |   |
|                                                         |   |                                                            |       |   |   |   |   |   |
| Directors      and executive officers as a group (8 persons) |   |                                                            | 19,341,681 |   |   |   | 33.5 | % |

----

----

| (1) | On      September 30, 2008, there were 57,676,481 shares of common stock      outstanding and no issued and outstanding preferred stock. Each person      named above has the sole investment and voting power with respect to all      shares of common stock shown as beneficially owned by the person, except      as otherwise indicated below. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (2) | Under      applicable SEC rules, a person is deemed to be the “beneficial owner” of a      security with regard to which the person directly or indirectly, has or      shares (a) the voting power, which includes the power to vote or direct      the voting of the security, or (b) the investment power, which includes      the power to dispose, or direct the disposition, of the security, in each      case irrespective of the person’s economic interest in the security. Under      these SEC rules, a person is deemed to beneficially own securities which      the person has the right to acquire within 60 days through the exercise of      any option or warrant or through the conversion of another      security. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (3) | In      determining the percent of voting stock owned by a person on September 30,      2008, (a) the numerator is the number of shares of common stock      beneficially owned by the person, including shares the beneficial      ownership of which may be acquired within 60 days upon the exercise of      options or warrants or conversion of convertible securities, and (b) the      denominator is the total of (i) the shares in the aggregate of common      stock outstanding on September 30, 2008, and (ii) any shares of common      stock which the person has the right to acquire within 60 days upon the      exercise of options or warrants or conversion of convertible securities.      Neither the numerator nor the denominator includes shares which may be      issued upon the exercise of any other options or warrants or the      conversion of any other convertiblesecurities. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (4) | According      to the Schedule 13G filed with the SEC on February 11, 2008, by Invesco      Ltd. on behalf of Invesco PowerShares Capital Management    LLC. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (5) | On      May 29, 2008, Mr. Li was granted an option to purchase 1,080,000 shares of      Common Stock at an exercise price of $4.18, the average closing price of      the five trading days preceding May 29, 2008. The option is subject to a      three-year vesting schedule, with the first 1/12 vesting on the last day      of the full fiscal quarter following the date of grant (September 30,      2008), and the remaining 11/12 vesting in eleven equal installments on the      last day of each following fiscal quarter.  Mr. Li is also a      party to an Escrow Agreement pursuant to which he agreed to place      2,179,550 shares of his common stock into escrow as “make good shares” for      the benefit of the new investors relating to the share issuance in January      2005 in the event we fail to satisfy certain “performance thresholds”, as      defined in the Escrow Agreement for the fiscal years ending September 30,      2005 and 2006. Our previously reported net income for the fiscal year      ended September 30, 2005 exceeded the “performance threshold” for such      period; accordingly, 1,089,775 of the shares placed in escrow by Mr. Li      were released to Mr. Li. Because the recognition of a compensation charge      in connection with the release of the escrowed shares back to Mr. Li would      cause our net income for fiscal year 2005 to fall below $12.0 million, and      based on Mr. Li’s understanding that the investors in the January 2005      share issuance would therefore become entitled to the 1,089,775 shares      released to him, Mr. Li undertook to transfer those shares to such      investors on a pro rata basis. Notwithstanding this undertaking, however,      the 1,089,775 shares were not delivered to such investors. Pursuant to the      Li Settlement Agreement, Mr. Li agreed to deliver the 1,089,775 shares to      BAK International; BAK International in turn agreed to deliver the shares      to the Company. Upon receipt of these shares, the Company agreed to      release all claims and causes of action against Mr. Li and certain other      persons regarding the shares. In November 2007, the 1,089,775 shares were      delivered to the Company. Under the terms of the Li Settlement Agreement,      the Company was also authorized to commence 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 entered into settlement agreements with certain      investors in the January 2005 private placement. Pursuant to the      settlement agreements, the Company and such investors have agreed, without      any admission of liability, to a settlement and mutual releases from all      claims relating to the January 2005 private placement, including all      claims relating to the 1,089,775 “make good shares” of our common stock      that had been placed into escrow by Mr. Li, in connection with the January      2005 private placement, as well as all claims, including claims for      liquidated damages, relating to registration rights granted in connection      with the January 2005 private placement. Pursuant to the settlement      agreements, we have made settlement payments to each of the settling      investors of a number of shares of common stock equal to 50% of the number      of “make good shares” such investor had claimed. Aggregate settlement      payments amounted to 368,745 shares as of September 30, 2008, all of which      were issued in the fiscal year ended September 30, 2008. 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 settlement      agreements, we filed a registration statement covering the resale of such      shares, which was declared effective by the SEC on June 26, 2008. The      shares listed under Mr. Li in this table do not include the 1,089,775      shares that were delivered to the Company as described herein. Mr. Li is      also a party to a guarantee agreement under which he has pledged certain      of his shares of our common stock to China Development Bank as collateral      for a long-term loan agreement entered into by Shenzhen BAK. Such shares      had previously been subject to a pledge in favor of Shenzhen Development      Bank which was released by Shenzhen Development Bank on August 25,      2006. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (6) | Dr.      Mao was granted an option to purchase 200,000 shares of Common Stock on      May 16, 2005, at a price of $6.25 per share, 40% of which vested on July      1, 2007, an additional 30% of which vested on January 1, 2008, and the      final 30% of which vested on July 1, 2008. On January 28, 2008, Dr. Mao      was granted an option to purchase an additional 200,000 shares of Common      Stock at a price of $4.30 per share. The option vests and becomes      exercisable in 12 installments over a three-year period as follows: the      first 16,667 shares on April 28, 2008, an additional 16,667 shares each      three months thereafter beginning on July 28, 2008, through October 28,      2010, and the final 16,663 shares on January 28,  2011. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (7) | On      June 25, 2007, Mr. Shen was granted an option to purchase 80,000 shares of      Common Stock at a price of $3.35 per share. The option vests over two      years, with 10,000 shares vesting on the last day of each fiscal quarter      following the grant date, with the first vesting date occurring on June      30, 2007. On January 28, 2008, Mr. Shen was granted an option to purchase      120,000 shares of Common Stock at a price of $4.30 per share. The option      vests and becomes exercisable over a three-year period with the option      vesting and becoming exercisable as to 1/12 of the total shares every      three months beginning on April 28,2008. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (8) | On      June 25, 2007, Dr. Budd was granted 5,000 shares of restricted Common      Stock. The restricted Common Stock was subject to a one-year vesting      schedule, with unvested shares being subject to limitations on transfer      and forfeiture provisions. The first 25% of the restricted shares vested      on the applicable grant date, and the remaining 75% vest in three equal      installments on the last day of each following full fiscal quarter of the      Company. On August 6, 2008, Dr. Budd was granted 5,000 shares of      restricted Common Stock on the same terms as those governing the June 25,      2007 grant. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (9) | On      June 25, 2007, Mr. Zhang was granted 5,000 shares of restricted Common      Stock. The restricted Common Stock was subject to a one-year vesting      schedule, with unvested shares being subject to limitations on transfer      and forfeiture provisions. The first 25% of the restricted shares vested      on the applicable grant date, and the remaining 75% vest in three equal      installments on the last day of each following full fiscal quarter of the      Company. On August 6, 2008, Mr. Zhang was granted 5,000 shares of      restricted Common Stock on the same terms as those governing the June 25,      2007 grant. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (10) | On      July 17, 2007, Mr. Goodner was granted 5,000 shares of restricted Common      Stock. The restricted Common Stock was subject to a one-year vesting      schedule, with unvested shares being subject to limitations on transfer      and forfeiture provisions. The first 25% of the restricted shares vested      on the applicable grant date, and the remaining 75% vest in three equal      installments on the last day of each following full fiscal quarter of the      Company. On August 6, 2008, Mr. Goodner was granted 5,000 shares of      restricted Common Stock on the same terms as those governing the July 17,      2007 grant. |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (11) | Mr.      Cao was granted 20,485 restricted shares of Common Stock on December 26,      2006, with 40% of such shares vesting on July 1, 2007, an additional 30%      vesting on January 1, 2008, and the remaining 30% vesting on July 1, 2008.      The first 40% of such shares has been exercised and  sold. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (12) |  On      June 25, 2007, Mr. Broom was granted an option to purchase 100,000 shares      of Common Stock at a price of $3.268 per share. The option vests over four      years, with 25,000 shares vesting on July 1 of each year and with the      first vesting date occurring on July 1, 2008. On January 28, 2008, Mr.      Broom was granted an option to purchase 40,000 shares of Common Stock at a      price of $4.30 per share. The option vests and becomes exercisable in 12      installments over a three-year period as follows: the first 3,334 shares      on April 28, 2008, an additional 3,334 shares each three months thereafter      beginning on July 28, 2008, through October 28, 2010, and the final 3,326      shares on January 28, 2011. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| ITEM      14. | PRINCIPAL      ACCOUNTING FEES AND SERVICES. |
|---------------|----------------------------------------------|

|                    |   | Year Ended September 30, |    |
|-------------------------|--------|-----------------------------------------|---------|
|                    |   | 2008                                    |    |   | 2007 |   |
| Audit      Fees         |   | $                                       | 175,000 |   |   | $ | 223,630 |   |
| Audit-Related      Fees |   | $                                       | 43,059  |   |   | $ | 24,375 |   |
| Tax      Fees           |   | $                                       | -       |   |   | $ | - |   |
| All      Other Fees     |   | $                                       | -       |   |   | $ | - |   |
| Total                   |   | $                                       | 218,059 |   |   | $ | 248,005 |   |

----

| ITEM      15. | EXHIBITS,      FINANCIAL STATEMENT SCHEDULES. |
|---------------|-----------------------------------------------|

| Exhibit No.  |   | Description                                                                                                                                                                                                                                                              |
|------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                    |   | Articles      of Incorporation of the Registrant (incorporated by reference to Exhibit      3.1 to the Registrant’s Annual Report on Form 10-K filed with the      Commission on December 8, 2006)                                                                      |
|                   |   |                                                                                                                                                                                                                                                                          |
| 3.2                    |   | By-laws      of the Registrant (incorporated by reference to Exhibit 3.2 to the      Registrant’s Annual Report on Form 10-K filed with the Commission on      December 19, 2007)                                                                                       |
|                   |   |                                                                                                                                                                                                                                                                          |
| 4.1                    |   | Form      of Registration Rights Agreement, dated November 5, 2007 (incorporated by      reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K      filed with the Commission on November 6, 2007)                                                    |
|                   |   |                                                                                                                                                                                                                                                                          |
| 4.2                    |   | China      BAK Battery, Inc. Stock Option Plan (incorporated by reference to Exhibit      10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the      Commission on August 22, 2006)                                                                     |
|                   |   |                                                                                                                                                                                                                                                                          |
| 4.3                    |   | Amendment      No. 1 to the China BAK Battery, Inc. Stock Option Plan (incorporated by      reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q      filed with the Commission on August 8, 2008)                                                |
|                   |   |                                                                                                                                                                                                                                                                          |
| 4.4                    |   | Form      of Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s      Current Report on Form 8-K filed with the Commission on August 26,      2008)                                                                                                   |
|                   |   |                                                                                                                                                                                                                                                                          |
| 4.5                    |   | Specimen      Common Stock Certificate representing shares of Common Stock, par value      $0.001 per share (incorporated by reference to Exhibit 4.1 to the      Registrant’s Registration Statement on Form S-8 filed with the Commission      on September 24, 2008) |
|                   |   |                                                                                                                                                                                                                                                                          |
| 10.1                   |   | China      BAK Battery, Inc. Compensation Plan for Non-Employee Directors      (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly      Report on Form 10-Q filed with the Commission on August 22,      2006)                                     |
|                   |   |                                                                                                                                                                                                                                                                          |
| 10.2                   |   | Form      of Indemnification Agreement with the Registrant’s directors (incorporated      by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on August 22, 2006)                                       |
|                   |   |                                                                                                                                                                                                                                                                          |
| 10.3                   |   | Employment      Agreement between the Registrant and Xiangqian Li , dated June 30, 2006      (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual      Report on Form 10-K filed with the Commission on December 19,      2007)                        |

----

| Exhibit No.  |   | Description                                                                                                                                                                                                                                                                                                                                                         |
|------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.4                   |   | Employment      Agreement between the Registrant and Huanyu Mao, dated June 30, 2006      (incorporated by reference to Exhibit 10.6 to the Registrant’s Annual      Report on Form 10-K filed with the Commission on December 19,      2007)                                                                                                                      |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                     |
| 10.5                   |   | Employment      Agreement between the Registrant and Kenneth G. Broom, dated December 20,      2006 (incorporated by reference to Exhibit 10.7 to the Registrant’s Annual      Report on Form 10-K filed with the Commission on December 19,      2007)                                                                                                            |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                     |
| 10.6                   |   | Employment      Agreement between the Registrant and Tony Shen, dated May 13, 2007      (incorporated by reference to Exhibit 10.8 to the Registrant’s Annual      Report on Form 10-K filed with the Commission on December 19,      2007)                                                                                                                        |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                     |
| 10.7                   |   | Warrant      issued by China BAK Battery, Inc. to Roth Capital Partners, LLC on      September 16, 2005 (incorporated by reference to Exhibit 10.50 to the      Registrant’s Annual Report on Form 10-KSB filed with the Commission on      December 30, 2005)                                                                                                     |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                     |
| 10.8                   |   | Warrant      issued by China BAK Battery, Inc. to Global Hunter Securities LLC on      September 16, 2005 (incorporated by reference to Exhibit 10.51 to the      Registrant’s Annual Report on Form 10-KSB filed with the Commission on      December 30, 2005)                                                                                                   |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                     |
| 10.9                   |   | Summary      of Comprehensive Credit Facility Agreement entered into between Shenzhen      BAK Battery Co., Ltd. and Shuibei Branch, Shenzhen Commercial Bank on      August 7, 2007 (incorporated by referent to Exhibit 10.8 to the      Registrant’s Quarterly Report on Form 10-Q filed with the Commission on      August 22, 2006)                           |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                     |
| 10.10                  |   | Guaranty      Contract of Maximum Amount, dated as of April 21, 2006, by and between BAK      International Limited and Shuibei Branch, Shenzhen Commercial Bank      (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly      Report on Form 10-Q filed with the Commission on August 22,      2006)                                         |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                     |
| 10.11                  |   | Individual      Guaranty Contract of Maximum Amount, dated as of April 21, 2006, by and      between Xiangqian Li and Shuibei Branch, Shenzhen Commercial Bank      (incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly      Report on Form 10-Q filed with the Commission on August 22,      2006)                                           |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                     |
| 10.12                  |   | Mortgage      Contract, dated November 23, 2006, by and between Shenzhen Eastern Branch,      Agricultural Bank of China and Shenzhen BAK Battery Co., Ltd.      (incorporated by referent to Exhibit 10.8 to the Registrant’s Quarterly      Report on Form 10-Q filed with the Commission on February 9,      2007)                                              |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                     |
| 10.13                  |   | Summary      of Comprehensive Credit Facility Agreement of Maximum Amount, dated June      8, 2007, by and between Shenzhen BAK Battery Co., Ltd. and Shenzhen      Eastern Branch, Agricultural Bank of China (incorporated by reference to      Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with      the Commission on August 7, 2007) |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                     |
| 10.14                  |   | Guaranty      Contract of Maximum Amount, dated June 8, 2007, among BAK International      Limited, Xiangqian Li and Shenzhen Eastern Branch, Agricultural Bank of      China (incorporated by reference to Exhibit 10.2 to the Registrant’s      Quarterly Report on Form 10-Q filed with the Commission on August 7,      2007)                                  |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                     |
| 10.15                  |   | Summary      of Loan Agreement, dated as of June 22, 2007, by and between Shenzhen BAK      Battery Co., Ltd. and Shenzhen Eastern Branch, Agricultural Bank of China      (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly      Report on Form 10-Q filed with the Commission on August 7,      2007)                                     |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                     |
| 10.16                  |   | Summary      of Comprehensive Credit Facilities Agreement, dated June 20, 2007, by and      between Shenzhen BAK Battery Co., Ltd. and Longgang Branch, Shenzhen      Development Bank (incorporated by reference to Exhibit 10.4 to the      Registrant’s Quarterly Report on Form 10-Q filed with the Commission on      August 7, 2007)                         |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                     |
| 10.17                  |   | Guaranty      Contract of Maximum Amount Pledge, dated June 20, 2007, by and between      Xiangqian Li and Longgang Branch, Shenzhen Development Bank (incorporated      by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on August 7,  2007)                                                         |

----

| Exhibit No.  |   | Description                                                                                                                                                                                                                                                                                                                                                          |
|------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.18                  |   | Guaranty      Contract of Maximum Amount, dated June 21, 2007, by and between BAK      International Limited and Longgang Branch, Shenzhen Development Bank      (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly      Report on Form 10-Q filed with the Commission on August 7,      2007)                                                |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 10.19                  |   | Guaranty      Contract of Maximum Amount, dated June 20, 2007, by and between Xiangqian      Li and Longgang Branch, Shenzhen Development Bank (incorporated by      reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on August 7, 2007)                                                                  |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 10.20                  |   | Summary      of Comprehensive Credit Facility Agreement, dated May 15, 2007, by and      between Shenzhen BAK Battery Co., Ltd. and Shuibei Branch, Shenzhen Ping      An Bank (f/k/a Shenzhen Commercial Bank) (incorporated by reference to      Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q filed with      the Commission on August 7, 2007) |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 10.21                  |   | Individual      Guaranty Contract of Maximum Amount, dated May 15, 2007, by and between      Xiangqian Li and Longgang Branch, Shenzhen Ping An Bank (f/k/a Shenzhen      Commercial Bank) (incorporated by reference to Exhibit 10.9 to the      Registrant’s Quarterly Report on Form 10-Q filed with the Commission on      August 7, 2007)                      |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 10.22                  |   | Guaranty      Contract of Maximum Amount, dated May 15, 2007, by and between BAK      International Limited and Longgang Branch, Shenzhen Ping An Bank (f/k/a      Shenzhen Commercial Bank) (incorporated by reference to Exhibit 10.10 to      the Registrant’s Quarterly Report on Form 10-Q filed with the Commission      on August 7, 2007)                   |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 10.23                  |   | Loan      Certificate, dated June 20, 2007, by and between Shenzhen BAK Battery Co.,      Ltd and Shuibei Branch, Shenzhen Ping An Bank (f/k/a Shenzhen Commercial      Bank) (incorporated by reference to Exhibit 10.13 to the Registrant’s      Quarterly Report on Form 10-Q filed with the Commission on August 7,      2007)                                  |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 10.24                  |   | Summary      of Comprehensive Credit Facility Agreement of Maximum Amount entered into      between Shenzhen BAK Battery Co., Ltd. And Shenzhen Branch, China CITIC      Bank on March 14, 2007 (incorporated by reference to Exhibit 10.1 to the      Registrant’s Quarterly Report on Form 10-Q filed with the Commission on      May 8, 2007)                    |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 10.25                  |   | Summary      of Guaranty Contract of Maximum Amount, dated March 14, 2007, by and      between BAK International Limited and China CITIC Bank (incorporated by      reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on May 8, 2007)                                                                      |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 10.26                  |   | Summary      of Guaranty Contract of Maximum Amount, dated March 14, 2007, by and      between Xiangqian Li and China CITIC Bank (incorporated by reference to      Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with      the Commission on May 8, 2007)                                                                                   |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 10.27                  |   | Loan      Certificate between Shenzhen BAK Battery Co., Ltd and China CITIC Bank on      April 16, 2007 (incorporated by reference to Exhibit 10.11 to the      Registrant’s Quarterly Report on Form 10-Q filed with the Commission on      August 7, 2007)                                                                                                        |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 10.28                  |   | Loan      Certificate between Shenzhen BAK Battery Co., Ltd and China CITIC Bank on      April 18, 2007 (incorporated by reference to Exhibit 10.12 to the      Registrant’s Quarterly Report on Form 10-filed with the Commission on      August 7, 2007)                                                                                                          |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 10.29                  |   | Summary      of Comprehensive Credit Facility Agreement entered into between Shenzhen      BAK Battery Co., Ltd and Shenzhen Branch, China Construction Bank on      February 14, 2007 (incorporated by reference to Exhibit 10.4 to the      Registrant’s Quarterly Report on Form 10-Q filed with the Commission on      May 8, 2007)                             |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 10.30                  |   | Summary      of Guaranty Agreement of Maximum Amount entered into between Shenzhen BAK      Battery Co., Ltd and Shenzhen Branch, China Construction Bank on February      14, 2007 (incorporated by reference to Exhibit 10.5 to the Registrant’s      Quarterly Report on Form 10-Q filed with the Commission on May 8,      2007)                                |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 10.31                  |   | Summary      of Loan Agreement entered into between Shenzhen BAK Battery Co., Ltd and      Shenzhen Branch, China Construction Bank on February 14, 2007      (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly      Report on Form 10-Q filed with the Commission on May 8,    2007)                                                        |

----

| Exhibit No.  |   | Description                                                                                                                                                                                                                                                                                                                                                                                             |
|------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.32                  |   | Summary      of Loan Agreement, effective December 18, 2006, between Shenzhen BAK      Battery Co., Ltd. and Shenzhen Eastern Branch, Agricultural Bank of China      (incorporated by reference to Exhibit 10.1 to the Registrant’s Current      Report on Form 8-K filed with the Commission on December 22,      2006)                                                                              |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.33                  |   | Summary      of Loan Agreement, dated December 26, 2006, between Shenzhen BAK Battery      Co., Ltd. and Shenzhen Branch, China Development Bank. (incorporated by      reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K      filed with the Commission on January 3, 2007)                                                                                                    |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.34                  |   | Summary      of Guaranty Agreement, dated December 26, 2006, between Xiangqian Li and      Shenzhen Branch, China Development Bank. (incorporated by reference to      Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the      Commission on January 3, 2007)                                                                                                                  |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.35                  |   | Summary      of Guaranty Contract, dated as of January 11, 2006, by and between      Shenzhen BAK Battery Co., Ltd. and Shenzhen Nanshan Branch of Guangdong      Development Bank to secure indebtedness of Shenzhen Tongli Hi-tech Co.,      Ltd. (incorporated by reference to Exhibit 10.2 to the Registrant’s      Current Report on Form 8-K filed with the Commission on January 18,      2006) |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.36                  |   | Summary      of Loan Agreement dated July 2, 2007, by and between Shenzhen BAK Co.,      Ltd. and Agricultural Bank of China, Shenzhen Eastern Branch (incorporated      by reference to Exhibit 10.41 to the Registrant’s Annual Report on Form      10-K filed with the Commission on December 19, 2007)                                                                                             |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.37                  |   | Summary      of Loan Agreement dated August 27, 2007, by and between Shenzhen BAK Co.,      Ltd. and Agricultural Bank of China, Shenzhen Eastern Branch (incorporated      by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form      10-K filed with the Commission on December 19, 2007)                                                                                          |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.38                  |   | Loan      Certificate, dated July 2, 2007, by and between Shenzhen BAK Battery Co.,      Ltd. and Shenzhen Development Bank, Shenzhen Branch (incorporated by      reference to Exhibit 10.43 to the Registrant’s Annual Report on Form 10-K      filed with the Commission on December 19, 2007)                                                                                                      |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.39                  |   | Loan      Certificate, dated August 14, 2007, by and between Shenzhen BAK Co., Ltd.      and Bank of China, Shenzhen Branch (incorporated by reference to Exhibit      10.44to the Registrant’s Annual Report on Form 10-K filed with the      Commission on December 19, 2007)                                                                                                                        |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.40                  |   | Loan      Certificate, dated August 15, 2006, by and between Shenzhen BAK Battery      Co., Ltd and Bank of China, Shenzhen Branch (incorporated by reference to      Exhibit 10.45 to the Registrant’s Annual Report on Form 10-K filed with      the Commission on December 19, 2007)                                                                                                                |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.41                  |   | Loan      Certificate, dated September 3, 2007, by and between Shenzhen BAK Battery      Co., Ltd. and Shenzhen Ping An Bank, Shuibei Branch (f/k/a Shenzhen      Commercial Bank) (incorporated by reference to Exhibit 10.46 to the      Registrant’s Annual Report on Form 10-K filed with the Commission on      December 19, 2007)                                                                |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.42                  |   | Loan      Certificate, dated September 6, 2007, by and between Shenzhen BAK Battery      Co., Ltd. and Shenzhen Ping An Bank, Shuibei Branch (f/k/a Shenzhen      Commercial Bank) (incorporated by reference to Exhibit 10.47 to the      Registrant’s Annual Report on Form 10-K filed with the Commission on      December 19, 2007)                                                                |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.43                  |   | Loan      Certificate, dated July 9, 2007, by and between Shenzhen BAK Co., Ltd. and      Agricultural Bank of China, Shenzhen Eastern Branch (incorporated by      reference to Exhibit 10.48 to the Registrant’s Annual Report on Form 10-K      filed with the Commission on December 19, 2007)                                                                                                     |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.44                  |   | Credit      Facility Agreement by and between Shenzhen BAK Battery Co., Ltd. and      Shenzhen Branch, Bank of China, dated November 1, 2007 (incorporated by      reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on February 6, 2008)                                                                                                     |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.45                  |   | Guaranty      Contract of Maximum Amount by and between Shenzhen BAK Battery Co., Ltd.      and Shenzhen Branch, Bank of China, dated November 1, 2007 (incorporated      by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on February 6, 2008)                                                                                           |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.46                  |   | Pledge      Contract of Maximum Amount by and between Shenzhen BAK Battery Co., Ltd.      and Shenzhen Branch, Bank of China, dated November 8, 2007 (incorporated      by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on February 6,  2008)                                                                                            |

----

| Exhibit No.  |   | Description                                                                                                                                                                                                                                                                                                                                                    |
|------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.47                  |   | Loan      Certificate between Shenzhen BAK Battery Co., Ltd. and Shenzhen Branch,      Bank of China, dated November 27, 2007 (incorporated by reference to      Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q filed with      the Commission on February 6, 2008)                                                                           |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.48                  |   | Loan      Certificate between Shenzhen BAK Battery Co., Ltd. and Shenzhen Pingshan      Branch, Shenzhen Development Bank, dated December 12, 2007 (incorporated      by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on February 6, 2008)                                                      |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.49                  |   | Loan      Certificate between Shenzhen BAK Battery Co., Ltd. and Shenzhen Pingshan      Branch, Shenzhen Development Bank, dated December 14, 2007 (incorporated      by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on February 6, 2008)                                                      |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.50                  |   | Loan      Certificate between Shenzhen BAK Battery Co., Ltd. and Shenzhen Pingshan      Branch, Shenzhen Development Bank, dated December 20, 2007 (incorporated      by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on February 6, 2008)                                                      |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.51                  |   | Loan      Certificate between Shenzhen BAK Battery Co., Ltd. and Shenzhen Shuibei      Branch, Shenzhen Ping An Bank, dated October 22, 2007 (incorporated by      reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on February 6, 2008)                                                           |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.52                  |   | Loan      Certificate between Shenzhen BAK Battery Co., Ltd. and Shenzhen Eastern      Branch, Agricultural Bank of China, dated October 11, 2007 (incorporated      by reference to Exhibit 10.11 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on February 6, 2008)                                                      |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.53                  |   | Loan      Certificate between Shenzhen BAK Battery Co., Ltd. and Shenzhen Eastern      Branch, Agricultural Bank of China, dated October 11, 2007 (incorporated      by reference to Exhibit 10.12 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on February 6, 2008)                                                      |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.54                  |   | Loan      Certificate between Shenzhen BAK Battery Co., Ltd. and Shenzhen Eastern      Branch, Agricultural Bank of China, dated October 11, 2007 (incorporated      by reference to Exhibit 10.13 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on February 6, 2008)                                                      |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.55                  |   | Form      of Settlement Agreement between the Registrant and certain investors      (incorporated by reference to Exhibit 10.2 to the Company’s Current Report      on Form 8-K, filed with the Commission on March 31,  2008)                                                                                                                                |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.56                  |   | Form      of Settlement Agreement between the Registrant and Chinamerica Fund, LP,      dated March 13, 2008 (incorporated by reference to Exhibit 10.1 to the      Registrant’s Quarterly Report on Form 10-Q filed with the Commission on      May 12, 2008)                                                                                                |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.57                  |   | Form      of Settlement Agreement between the Registrant and The Pinnacle Fund,      L.P., dated March 21, 2008 (incorporated by reference to Exhibit 10.2 to      the Registrant’s Quarterly Report on Form 10-Q filed with the Commission      on May 12, 2008)                                                                                             |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.58                  |   | Summary      of Comprehensive Credit Facility Agreement, by and between Shenzhen BAK      Battery Co., Ltd and Shenzhen Hi-tech Industrial Park Branch, Industrial      Bank Co., Ltd, dated March 25, 2008 (incorporated by reference to Exhibit      10.4 to the Registrant’s Quarterly Report on Form 10-Q filed with the      Commission on May 12, 2008) |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.59                  |   | Summary      of Guaranty Contract of Maximum Amount, by and between Mr. Xiangqian Li      and Shenzhen Hi-tech Industrial Park Branch, Industrial Bank Co., Ltd on      March 24, 2008 (incorporated by reference to Exhibit 10.5 to the      Registrant’s Quarterly Report on Form 10-Q filed with the Commission on      May 12, 2008)                      |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.60                  |   | Summary      of Loan Agreement, by and between Shenzhen BAK Battery Co., Ltd. and      Shenzhen Hi-tech Industrial Park Branch, Industrial Bank Co., Ltd, dated      March 25, 2008 (incorporated by reference to Exhibit 10.6 to the      Registrant’s Quarterly Report on Form 10-Q filed with the Commission on      May 12, 2008)                         |
|                   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.61                  |   | Loan      certificate with Shenzhen Hi-tech Industrial Park Branch, Industrial Bank      Co., Ltd, dated March 25, 2008 (incorporated by reference to Exhibit 10.7      to the Registrant’s Quarterly Report on Form 10-Q filed with the      Commission on May 12,2008)                                                                                      |

----

| Exhibit No.  |   | Description                                                                                                                                                                                                                                                                                                                                        |
|------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.62                  |   | Loan      certificate with Shenzhen Branch, Bank of China, dated March 27, 2008      (incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly      Report on Form 10-Q filed with the Commission on May 12,    2008)                                                                                                              |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.63                  |   | Summary      of Loan Agreement between BAK International (Tianjin) Limited and Tianjin      Branch, Agricultural Bank of China, dated May 26, 2008 (incorporated by      reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on August 8, 2008)                                            |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.64                  |   | Summary      of Loan Agreement between Shenzhen BAK Battery Co., Ltd. and Shenzhen East      Branch, Agricultural Bank of China, dated May 20, 2008 (incorporated by      reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on August 8, 2008)                                           |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.65                  |   | Summary      of Guaranty Contract of Maximum Amount between BAK International (Tianjin)      Ltd. and Shenzhen Eastern Branch, Agricultural Bank of China, dated May      20, 2008 (incorporated by reference to Exhibit 10.4 to the Registrant’s      Quarterly Report on Form 10-Q filed with the Commission on August 8,      2008)            |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.66                  |   | Summary      of Comprehensive Credit Facility Agreement of Maximum Amount between      Shenzhen BAK Battery Co., Ltd. and Shenzhen Branch, China CITIC Bank Co.,      Ltd., dated May 9, 2008 (incorporated by reference to Exhibit 10.5 to the      Registrant’s Quarterly Report on Form 10-Q filed with the Commission on      August 8, 2008) |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.67                  |   | Summary      of Guaranty Contract of Maximum Amount between BAK International Limited      and Shenzhen Branch, China CITIC Bank Co., Ltd., dated May 9, 2008      (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly      Report on Form 10-Q filed with the Commission on August 8,      2008)                            |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.68                  |   | Summary      of Guaranty Contract of Maximum Amount between Xiangqian Li and Shenzhen      Branch, China CITIC Bank Co., Ltd., dated May 9, 2008 (incorporated by      reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on August 8, 2008)                                              |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.69                  |   | Supplemental      Agreement between Shenzhen BAK Battery Co., Ltd. and Shenzhen Branch,      Agricultural Bank of China, dated August 6, 2008 (incorporated by      reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on August 8, 2008)                                                 |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.70                  |   | Summary      of Loan Agreement by and between Shenzhen BAK Battery Co., Ltd. and      Shenzhen Eastern Branch, Agricultural Bank of China, dated September 17,      2008                                                                                                                                                                                |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.71                  |   | Summary      of Loan Agreement by and between Shenzhen BAK Battery Co., Ltd. and      Shenzhen Eastern Branch, Agricultural Bank of China, dated September 19,      2008                                                                                                                                                                                |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.72                  |   | Credit      Loan Certificate between Bank of China and Shenzhen BAK Battery Co., Ltd.,      dated August 19, 2008                                                                                                                                                                                                                                       |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.73                  |   | Credit      Loan Certificate between Bank of China, Shenzhen Branch and Shenzhen BAK      Battery Co., Ltd., dated August 29, 2008                                                                                                                                                                                                                      |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.74                  |   | Guaranty      Contract of Maximum Amount among BAK International (Tianjin) Limited, BAK      International Limited, Xiangqian Li, and Shenzhen Eastern Branch,      Agricultural Bank of China, dated September 17, 2008                                                                                                                                |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.75                  |   | Summary      of Shenzhen Land Use Right Grant Agreement by and between Shenzhen      Municipal Bureau of Land Resources and Housing Management and Shenzhen BAK      Battery Co., Ltd., dated June 29, 2007                                                                                                                                             |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.76                  |   | Summary      of Contract for Assignment of Shenzhen Land Use Right by and between      Shenzhen Municipal Bureau of Land Resources and Housing Management and      Shenzhen BAK Battery Co., Ltd., dated June 29, 2007                                                                                                                                  |
|                   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.77                  |   | Summary      of Loan Agreement by and between Shenzhen BAK Battery Co., Ltd. and      Shenzhen Eastern Branch, Agricultural Bank of China, dated November 23,      2006 (incorporated by reference to Exhibit 10.1 to the Registrant’s      Current Report on Form 8-K filed with the Commission on December 22,      2006)                       |

----

| Exhibit No.  |   | Description                                                                                                                                                                                                                                                                                                                                     |
|------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.78                  |   | Form      of Securities Purchase Agreement (incorporated by reference to Exhibit      10.1 to the Registrant’s Current Report on Form 8-K filed with the      Commission on August 26, 2008)                                                                                                                                              |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.79                  |   | Placement      Agency Agreement between the Registrant and Brean Murray, Carret &      Co., LLC, accepted August 22, 2008 (incorporated by reference to      Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the      Commission on August 26, 2008)                                                 |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.80                  |   | Amendment      to Placement Agency Agreement between the Registrant and Brean Murray,      Carret & Co., LLC, dated August 22, 2008 (incorporated by reference to      Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the      Commission on August 26, 2008)                                                 |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.81                  |   | Form      of Securities Purchase Agreement, dated November 5, 2007 (incorporated by      reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K      filed with the Commission on November 6, 2007)                                                                                                                     |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.82                  |   | Delivery      of Make Good Shares, Settlement and Release Agreement, by and among China      BAK Battery, Inc., Xiangqian Li, and BAK International, Ltd., dated      October 22, 2007 (incorporated by reference to Exhibit 10.2 to the      Registrant’s Current Report on Form 8-K filed with the Commission on      November 6, 2007) |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.83                  |   | Escrow      Agreement by and among Medina Coffee, Inc., certain investors indicated      therein, Xiangqian Li, and Securities Transfer Corporation, dated as of      January 20, 2005 (incorporated by reference to Exhibit 10.2 to the      Company’s Current Report on Form 8-K filed with the Commission on January      21, 2005)    |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.84                  |   | Form      of Restricted Stock Grant Agreement (incorporated by reference to Exhibit      10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the      Commission on February 9, 2007)                                                                                                                                       |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 14.1                   |   | Code      of Business Conduct and Ethics of the Registrant (incorporated by      reference to Exhibit 14.1 to the Registrant’s Quarterly Report on Form      10-Q filed with the Commission on August 22, 2006)                                                                                                                           |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 16.1                   |   | Letter      from KPMG to Securities and Exchange Commission, dated April 13, 2007      (incorporated by reference to Exhibit 16 to the Registrant’s Current      Report on Form 8-K/A filed with the Commission on April 17,      2007)                                                                                                   |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 21.1                   |   | Subsidiaries      of the Registrant (incorporated by reference to Exhibit 21.1 to the      Registrant’s Form S-1 filed with the Commission on October 11,      2006)                                                                                                                                                                      |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 23.1                   |   | Consent      of PKF                                                                                                                                                                                                                                                                                                                             |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 23.2                   |   | Consent      of KPMG                                                                                                                                                                                                                                                                                                                            |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 31.1                   |   | Certifications      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley      Act of 2002                                                                                                                                                                                                                                   |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 31.2                   |   | Certifications      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley      Act of 2002                                                                                                                                                                                                                                   |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 32.1                   |   | Certifications      of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley      Act of 2002                                                                                                                                                                                                                                   |
|                   |   |                                                                                                                                                                                                                                                                                                                                            |
| 32.2                   |   | Certifications      of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley      Act of2002                                                                                                                                                                                                                                    |

----

| Contents                                                                                                                       |   | Page(s)         |
|--------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|
|                                                                                                                           |   |            |
| Report      of Independent Registered Public Accounting Firm - PKF                                                             |   | F-1             |
|                                                                                                                           |   |            |
| Report      of Independent Registered Public Accounting Firm - KPMG                                                            |   | F-2             |
|                                                                                                                           |   |            |
| Consolidated      Balance Sheets as of September 30, 2007 and 2008                                                             |   | F-3      - F-4  |
|                                                                                                                           |   |            |
| Consolidated      Statements of Operations and Comprehensive Income for the years ended      September 30, 2006, 2007 and 2008 |   | F-5             |
|                                                                                                                           |   |            |
| Consolidated      Statements of Shareholders’ Equity for the years ended September 30, 2006,      2007 and 2008          |   | F-6             |
|                                                                                                                           |   |            |
| Consolidated      Statements of Cash Flows for the years ended September 30, 2006, 2007 and      2008                          |   | F-7      - F-8  |
|                                                                                                                           |   |            |
| Notes      to the Consolidated Financial Statements                                                                            |   | F-9      - F-45 |

----

----

----

|                                    |   | Note   |        |   | 2007   |       |        | 2008   |   |
|-----------------------------------------|--------|--------|--------------------------------------|--------|--------|------------|-------------|--------|--------|
|                                    |   |   |                                 |   |   |       |        |   |   |
| Assets                                  |   |   |                                 |   |   |       |        |   |   |
| Current      assets                     |   |   |                                 |   |   |       |        |   |   |
| Cash      and cash equivalents          |   |   |                                 |   | $      | 14,196,513 |        |   | $      | 35,706,834 |   |
| Pledged      deposits                   |   |   | 3                                    |   |   |       | 4,594,727   |   |   |   | 4,449,244 |   |
| Trade      accounts receivable, net     |   |   | 4                                    |   |   |       | 63,150,872  |   |   |   | 82,740,288 |   |
| Inventories                             |   |   | 5                                    |   |   |       | 59,827,232  |   |   |   | 67,583,060 |   |
| Prepayments      and other receivables  |   |   | 6                                    |   |   |       | 1,656,494   |   |   |   | 4,462,492 |   |
| Deferred      tax assets                |   |   | 7                                    | (b)    |   |       | 502,916     |   |   |   | 1,719,662 |   |
|                                    |   |   |                                 |   |   |       |        |   |   |   |   |   |
| Total      current assets               |   |   |                                 |   |   |       | 143,928,754 |   |   |   | 196,661,580 |   |
|                                    |   |   |                                 |   |   |       |        |   |   |   |   |   |
| Property,      plant and equipment, net |   |   | 8,      20                           |   |   |       | 145,123,022 |   |   |   | 195,435,212 |   |
| Lease      prepayments, net             |   |   | 9                                    |   |   |       | 17,884,436  |   |   |   | 31,782,129 |   |
| Intangible      assets, net             |   |   | 10                                   |   |   |       | 121,038     |   |   |   | 161,418 |   |
| Deferred      tax assets                |   |   | 7                                    | (b)    |   |       | 171,774     |   |   |   | 6,543 |   |
|                                    |   |   |                                 |   |   |       |        |   |   |   |   |   |
| Total      assets                       |   |   |                                 |   |   | $          | 307,229,024 |   |   | $ | 424,046,882 |   |

----

|                                                                                                                              |   | Note   |         |   | 2007   |   |        | 2008   |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------|--------|--------|--------|-------------|--------|--------|
|                                                                                                                              |   |   |                                       |   |   |   |        |   |   |
| Liabilities                                                                                                                       |   |   |                                       |   |   |   |        |   |   |
| Current      liabilities                                                                                                          |   |   |                                       |   |   |   |        |   |   |
| Short-term      bank loans                                                                                                        |   |   | 11                                         |   |   | $      | 89,870,586  |   |   | $ | 105,598,170 |   |
| Current      maturities of long-term bank loans                                                                                   |   |   | 12                                         |   |   |   | -           |   |   |   | 8,799,848 |   |
| Accounts      and bills payable                                                                                                   |   |   |                                       |   |   |   | 45,588,583  |   |   |   | 57,486,716 |   |
| Accrued      expenses and other payables                                                                                          |   |   | 13                                         |   |   |   | 15,467,192  |   |   |   | 21,581,182 |   |
|                                                                                                                              |   |   |                                       |   |   |   |        |   |   |   |   |   |
| Total      current liabilities                                                                                                    |   |   |                                       |   |   |   | 150,926,361 |   |   |   | 193,465,916 |   |
|                                                                                                                              |   |   |                                       |   |   |   |        |   |   |   |   |   |
| Long-term      bank loans, less current maturities                                                                                |   |   | 12                                         |   |   |   | 29,291,154  |   |   |   | 55,732,366 |   |
| Deferred      revenue                                                                                                             |   |   | 21                                         |   |   |   | -           |   |   |   | 7,685,200 |   |
| Deferred      tax liabilities                                                                                                     |   |   | 7                                          | (b)    |   |   | 279,597     |   |   |   | 91,400 |   |
|                                                                                                                              |   |   |                                       |   |   |   |        |   |   |   |   |   |
| Total      liabilities                                                                                                            |   |   |                                       |   |   |   | 180,497,112 |   |   |   | 256,974,882 |   |
|                                                                                                                              |   |   |                                       |   |   |   |        |   |   |   |   |   |
| Commitments      and contingencies                                                                                                |   |   | 20                                         |   |   |   |        |   |   |   |   |   |
|                                                                                                                              |   |   |                                       |   |   |   |        |   |   |   |   |   |
| Shareholders’      equity                                                                                                   |   |   |                                       |   |   |   |        |   |   |   |   |   |
| Ordinary      shares US$ 0.001 par value;                                                                                         |   |   |                                       |   |   |   |        |   |   |   |   |   |
| 100,000,000      authorized; 49,250,853 and 57,676,481 issued and outstanding as of      September 30, 2007 and 2008 respectively |   |   |                                       |   |   |   | 49,251      |   |   |   | 57,677 |   |
| Donated      shares                                                                                                               |   |   |                                       |   |   |   | 7,955,358   |   |   |   | 14,101,689 |   |
| Additional      paid-in capital                                                                                                   |   |   |                                       |   |   |   | 66,355,151  |   |   |   | 97,286,286 |   |
| Statutory      reserves                                                                                                           |   |   |                                       |   |   |   | 6,426,977   |   |   |   | 6,917,943 |   |
| Retained      earnings                                                                                                            |   |   |                                       |   |   |   | 36,060,426  |   |   |   | 27,628,860 |   |
| Accumulated      other comprehensive income                                                                                       |   |   |                                       |   |   |   | 9,884,749   |   |   |   | 25,146,155 |   |
|                                                                                                                              |   |   |                                       |   |   |   | 126,731,912 |   |   |   | 171,138,610 |   |
|  Less:      Treasury shares                                                                                                  |   |   |                                       |   |   |   | -           |   |   |   | (4,066,610 | ) |
|                                                                                                                              |   |   |                                       |   |   |   |        |   |   |   |   |   |
| Total      shareholders’ equity                                                                                             |   |   |                                       |   |   |   | 126,731,912 |   |   |   | 167,072,000 |   |
|                                                                                                                              |   |   |                                       |   |   |   |        |   |   |   |   |   |
| Total      liabilities and shareholders’ equity                                                                             |   |   |                                       |   |   | $      | 307,229,024 |   |   | $ | 424,046,882 |   |

----

|                                             |   | Note   |         |   | 2006   |   |         | 2007   |   |   | 2008         |   |
|--------------------------------------------------|--------|--------|--------------------------------------------|--------|--------|--------|--------------|--------|--------|--------|--------------|--------|
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |
| Net      revenues                                |   |   | 23                                         |   |   | $      | 143,829,016  |   |   | $      | 145,860,899  |   |   | $ | 245,347,569 |   |
| Cost      of revenues                            |   |   | 8,      17                                 |   |   |   | (104,196,278 | )      |   |   | (120,254,925 | )      |   |   | (214,441,714 | ) |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| Gross      profit                                |   |   |                                       |   |   |   | 39,632,738   |   |   |   | 25,605,974   |   |   |   | 30,905,855 |   |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| Operating      expenses:                         |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| Research      and development expenses           |   |   | 8,      17                                 |   |   |   | (2,935,134   | )      |   |   | (3,957,145   | )      |   |   | (6,252,106 | ) |
| Sales      and marketing expenses                |   |   | 8,      17                                 |   |   |   | (5,054,624   | )      |   |   | (4,695,604   | )      |   |   | (5,802,655 | ) |
| General      and administrative expenses         |   |   | 8,      17                                 |   |   |   | (9,071,615   | )      |   |   | (12,371,873  | )      |   |   | (19,347,625 | ) |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| Total      operating expenses                    |   |   |                                       |   |   |   | (17,061,373  | )      |   |   | (21,024,622  | )      |   |   | (31,402,386 | ) |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| Operating      income / (loss)                   |   |   |                                       |   |   |   | 22,571,365   |   |   |   | 4,581,352    |   |   |   | (496,531 | ) |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| Finance      costs, net                          |   |   | 16                                         |   |   |   | (1,888,313   | )      |   |   | (5,224,800   | )      |   |   | (11,020,808 | ) |
| Gain      on trading securities                  |   |   |                                       |   |   |   | 279,260      |   |   |   | -            |   |   |   | - |   |
| Government      grant income                     |   |   |                                       |   |   |   | -            |   |   |   | 1,034,685    |   |   |   | 1,774,375 |   |
| Other      (expenses) / income                   |   |   |                                       |   |   |   | (204,854     | )      |   |   | (103,430     | )      |   |   | 757,151 |   |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| Income      / (loss) before income taxes         |   |   |                                       |   |   |   | 20,757,458   |   |   |   | 287,807      |   |   |   | (8,985,813 | ) |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| Income      taxes                                |   |   | 7                                          | (a)    |   |   | (592,892     | )      |   |   | 195,521      |   |   |   | 1,045,213 |   |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| Net      income / (loss)                         |   |   |                                       |   |   | $      | 20,164,566   |   |   | $      | 483,328      |   |   | $ | (7,940,600 | ) |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| Other      comprehensive income                  |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| -      Foreign currency translation adjustment   |   |   |                                       |   |   |   | 2,443,124    |   |   |   | 6,436,370    |   |   |   | 15,261,406 |   |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| Comprehensive      income                        |   |   |                                       |   |   | $      | 22,607,690   |   |   | $      | 6,919,698    |   |   | $ | 7,320,806 |   |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| Net      income / (loss) per share:              |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| -Basic                                           |   |   | 15                                         |   |   | $      | 0.41         |   |   | $      | 0.01         |   |   | $ | (0.15 | ) |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| -Diluted                                         |   |   | 15                                         |   |   | $      | 0.41         |   |   | $      | 0.01         |   |   | $ | (0.15 | ) |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| Weighted      average number of ordinary shares: |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| -Basic                                           |   |   | 15                                         |   |   |   | 48,879,608   |   |   |   | 48,979,115   |   |   |   | 52,313,768 |   |
|                                             |   |   |                                       |   |   |   |         |   |   |   |         |   |   |   |   |   |
| -Diluted                                         |   |   | 15                                         |   |   |   | 48,912,963   |   |   |   | 49,442,285   |   |   |   | 52,313,768 |   |

----

|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      | Accumulated   |   |   |           |       |   |   |      |       | Total                                                                                                                                                        |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------|--------|--------|----------------|------------|------------|--------|--------|---------|---------|--------|--------|----------------------|------------|--------|-----------|------------|------------|----------------------|--------|-----------|---------------|--------|--------|----------------|------------|--------|--------|-----------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                     |   | Ordinary shares |   |   |           |       |       |   |   |    |    |   |   |                 |       |   | other     |       |       | Treasury shares |   |      | share-        |   |
|                                                                                                                                     |   |                 |   |   | Number of |       |       |   |   |    | Donated |   |   | Additional           |       |   | Statutory |       |       | Retained             |   |      | comprehensive |   |   | Number of |       |   |   |      |       | holders’                                                                                                                                               |   |
|                                                                                                                                     |   | Note                 |   |   | shares         |       |       | Amount |   |    | shares  |   |   | paid-in capital |       |   | reserves  |       |       | earnings             |   |      | income        |   |   | shares         |       |   | Amount |      |       | equity                                                                                                                                                       |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                            |   |
| Balance      as of October 1, 2005                                                                                                       |   |                 |   |   |           | 48,878,396 |       |   | $      | 48,878  |    |   | $      | —              |       |   | $         | 67,415,501 |       |                 | $      | 3,034,141 |          |   | $      | 18,805,368     |       |   | $      | 1,005,255 |       |                                                                                                                                                         |   | — |   |   | $ | — |   |   | $ | 90,309,143 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                                                          |   |                 |   |   |           | —    |       |   |   | — |    |   |   | —              |       |   |      | —    |       |                 |   | —   |          |   |   | 20,164,566     |       |   |   | —   |       |                                                                                                                                                         |   | — |   |   |   | — |   |   |   | 20,164,566 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |
| Share-based      compensation for employee stock option      awards                                                                      |   |                 | 18     |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | 2,625,269  |                 |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | 2,625,269 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Cancellation      of 1,400,000 employee stock options, replaced by restricted shares awards      which are classified as liability award |   |                 | 18     |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | (2,045,393 | )                    |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | (2,045,393 | ) |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Share-based      compensation for common stock granted to non-employee      directors                                                    |   |                 | 18     |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | 131,320    |                 |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | 131,320 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance      of common stock to non-employee directors                                                                                  |   |                 | 18     |   |           |       | 7,500      |   |   |    | 8       |   |   |                 | —    |   |      |       | (8         | )                    |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | — |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Appropriation      to statutory reserves                                                                                                 |   |                 |   |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | —    |                 |   |      | 2,757,577     |   |   |           | (2,757,577 | )      |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | — |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign      currency translation adjustment                                                                                             |   |                 |   |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | —    |                 |   |      | —       |   |   |           | —    |   |   |      | 2,443,124  |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | 2,443,124 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      as of September 30, 2006                                                                                                    |   |                 |   |   |           |       | 48,885,896 |   |   | $       | 48,886  |   |   | $                    | —    |   |      | $          | 68,126,689 |                 |   | $         | 5,791,718     |   |   | $              | 36,212,357 |   |   | $         | 3,448,379  |                                                                                                                                                         |   |   | — |   |   | $ | — |   |   | $ | 113,628,029 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                                                          |   |                 |   |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | —    |                 |   |      | —       |   |   |           | 483,328    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | 483,328 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| 2006      escrow shares donated by Mr. Xiangqian Li and released to      investors                                                       |   |                 |   |   |           |       | —    |   |   |    | — |   |   |                 | 7,955,358  |   |      |       | (7,955,358 | )                    |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | — |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Share-based      compensation for employee stock option awards                                                                           |   |                 | 18     |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | 1,173,033  |                 |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | 1,173,033 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance      of 914,994 shares of restricted stocks and reclassification of      liability-classified awards                            |   |                 | 18     |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | 4,969,974  |                 |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | 4,969,974 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Share-based      compensation for common stock granted to employees and non-employee      directors                                      |   |                 | 18     |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | 41,178     |                 |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | 41,178 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance      of common stock to employees and non-employee directors                                                                    |   |                 | 18     |   |           |       | 364,957    |   |   |    | 365     |   |   |                 | —    |   |      |       | (365       | )                    |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | — |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Appropriation      to statutory reserves                                                                                                 |   |                 |   |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | —    |                 |   |      | 635,259       |   |   |           | (635,259   | )      |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | — |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign      currency translation adjustment                                                                                             |   |                 |   |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | —    |                 |   |      | —       |   |   |           | —    |   |   |      | 6,436,370  |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | 6,436,370 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      as of September 30, 2007                                                                                                    |   |                 |   |   |           |       | 49,250,853 |   |   | $       | 49,251  |   |   | $                    | 7,955,358  |   |      | $          | 66,355,151 |                 |   | $         | 6,426,977     |   |   | $              | 36,060,426 |   |   | $         | 9,884,749  |                                                                                                                                                         |   |   | — |   |   | $ | — |   |   | $ | 126,731,912 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| 2005      escrow shares donated by Mr. Xiangqian Li                                                                                      |   |                 |   |   |           |       | —    |   |   |    | — |   |   |                 | 6,146,331  |   |      |       | —    |                 |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | (1,089,775 | ) |   |   | (6,146,331 | ) |   |   | — |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| 2005      escrow shares settlement                                                                                                       |   |                 |   |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | (2,079,721 | )                    |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | 368,745 |   |   |   | 2,079,721 |   |   |   | — |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                                                                                            |   |                 |   |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | —    |                 |   |      | —       |   |   |           | (7,940,600 | )      |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | (7,940,600 | ) |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Share-based      compensation for employee stock option awards and issuance of restricted      stock                                     |   |                 | 18     |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | 3,780,074  |                 |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | 3,780,074 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Exercise      of stock options awards                                                                                                    |   |                 | 18     |   |           |       | 277,500    |   |   |    | 278     |   |   |                 | —    |   |      |       | 1,502,980  |                 |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | 1,503,258 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance      of common stock to employees                                                                                               |   |                 | 18     |   |           |       | 530,560    |   |   |    | 530     |   |   |                 | —    |   |      |       | (530       | )                    |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | — |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance      of common stock to non-employee directors                                                                                  |   |                 | 18     |   |           |       | 15,000     |   |   |    | 15      |   |   |                 | —    |   |      |       | (15        | )                    |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | — |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance      of new common stock                                                                                                        |   |                 |   |   |           |       | 7,602,568  |   |   |    | 7,603   |   |   |                 | —    |   |      |       | 27,728,347 |                 |   |      | —       |   |   |           | —    |   |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | 27,735,950 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Appropriation      to statutory reserves                                                                                                 |   |                 |   |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | —    |                 |   |      | 490,966       |   |   |           | (490,966   | )      |   |      | —    |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | — |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign      currency translation adjustment                                                                                             |   |                 |   |   |           |       | —    |   |   |    | — |   |   |                 | —    |   |      |       | —    |                 |   |      | —       |   |   |           | —    |   |   |      | 15,261,406 |                                                                                                                                                         |   |   | — |   |   |   | — |   |   |   | 15,261,406 |   |
|                                                                                                                                     |   |                 |   |   |           |       |       |   |   |    |    |   |   |                 |       |   |      |       |       |                 |   |      |          |   |   |           |       |   |   |      |       |                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      as of September 30, 2008                                                                                                    |   |                 |   |   |           |       | 57,676,481 |   |   | $       | 57,677  |   |   | $                    | 14,101,689 |   |      | $          | 97,286,286 |                 |   | $         | 6,917,943     |   |   | $              | 27,628,860 |   |   | $         | 25,146,155 |                                                                                                                                                         |   |   | (721,030 | ) |   | $ | (4,066,610 | ) |   | $ | 167,      072,000 |   |

----

|                                                                                                             |   | 2006   |        |   | 2007   |   |        | 2008   |   |
|------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|-------------|--------|--------|
| Cash      flow from operating activities                                                                         |   |   |        |   |   |   |        |   |   |
| Net      income / (loss)                                                                                         |   | $      | 20,164,566  |   |   | $      | 483,328     |   |   | $ | (7,940,600 | ) |
| Adjustments      to reconcile net income / (loss) to net cash (used in) / provided by      operating activities: |   |   |        |   |   |   |        |   |   |   |   |   |
| Depreciation      and amortization                                                                               |   |   | 5,815,706   |   |   |   | 8,911,704   |   |   |   | 13,249,392 |   |
| Provision      for / (recovery of) doubtful debts                                                                |   |   | (555,593    | )      |   |   | 1,825,149   |   |   |   | 1,943,006 |   |
| Provision      for obsolete inventories                                                                          |   |   | -           |   |   |   | 1,639,024   |   |   |   | 609,950 |   |
| Share-based      compensation                                                                                    |   |   | 4,336,361   |   |   |   | 2,559,020   |   |   |   | 3,780,074 |   |
| Loss      of disposal of property, plant and equipment                                                           |   |   | -           |   |   |   | -           |   |   |   | 194,572 |   |
| Deferred      income taxes                                                                                       |   |   | 72,810      |   |   |   | (609,684    | )      |   |   | (1,152,379 | ) |
| Deferred      revenue                                                                                            |   |   | -           |   |   |   | -           |   |   |   | (281,786 | ) |
| Exchange      loss                                                                                               |   |   | -           |   |   |   | -           |   |   |   | 1,326,524 |   |
|                                                                                                             |   |   |        |   |   |   |        |   |   |   |   |   |
| Changes      in operating assets and liabilities:                                                                |   |   |        |   |   |   |        |   |   |   |   |   |
| Trade      accounts receivable                                                                                   |   |   | (19,938,136 | )      |   |   | 2,617,075   |   |   |   | (14,600,168 | ) |
| Inventories                                                                                                      |   |   | (25,692,710 | )      |   |   | (11,306,910 | )      |   |   | (2,223,341 | ) |
| Prepayments      and other receivables                                                                           |   |   | 456,086     |   |   |   | (218,914    | )      |   |   | (2,564,878 | ) |
| Accounts      and bills payable                                                                                  |   |   | 4,273,690   |   |   |   | (3,037,756  | )      |   |   | 6,934,131 |   |
| Accrued      expenses and other payables                                                                         |   |   | 5,382,463   |   |   |   | 123,504     |   |   |   | 3,429,849 |   |
|                                                                                                             |   |   |        |   |   |   |        |   |   |   |   |   |
| Net      cash (used in) / provided by operating activities                                                       |   |   | (5,684,757  | )      |   |   | 2,985,540   |   |   |   | 2,704,346 |   |
|                                                                                                             |   |   |        |   |   |   |        |   |   |   |   |   |
| Cash      flow from investing activities                                                                         |   |   |        |   |   |   |        |   |   |   |   |   |
|                                                                                                             |   |   |        |   |   |   |        |   |   |   |   |   |
| Purchases      of property, plant and equipment                                                                  |   |   | (41,382,163 | )      |   |   | (48,792,746 | )      |   |   | (45,774,710 | ) |
| Payment      of lease prepayment                                                                                 |   |   | -           |   |   |   | (17,041,954 | )      |   |   | (5,454,339 | ) |
| Proceeds      from disposal of property, plant and equipment                                                     |   |   | -           |   |   |   | -           |   |   |   | 786,401 |   |
| Purchases      of intangible assets                                                                              |   |   | (33,738     | )      |   |   | (60,756     | )      |   |   | (108,501 | ) |
|                                                                                                             |   |   |        |   |   |   |        |   |   |   |   |   |
| Net      cash used in investing activities                                                                       |   | $      | (41,415,901 | )      |   | $      | (65,895,456 | )      |   | $ | (50,551,149 | ) |

----

|                                                                              |   | 2006   |        |   | 2007   |   |         | 2008   |   |
|-----------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|--------------|--------|--------|
| Cash      flow from financing activities                                          |   |   |        |   |   |   |         |   |   |
|                                                                              |   |   |        |   |   |   |         |   |   |
| Proceeds      from borrowings                                                     |   | $      | 99,036,333  |   |   | $      | 157,532,382  |   |   | $ | 159,913,210 |   |
| Repayment      of borrowings                                                      |   |   | (70,681,655 | )      |   |   | (111,115,433 | )      |   |   | (122,576,645 | ) |
| Decrease      in pledged deposits                                                 |   |   | 6,420,291   |   |   |   | 8,827,193    |   |   |   | 588,058 |   |
| Amounts      received from related parties                                        |   |   | 271,873     |   |   |   | -            |   |   |   | - |   |
| Proceeds      from issuance of capital stock, net                                 |   |   | -           |   |   |   | -            |   |   |   | 29,239,208 |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Net      cash provided by financing activities                                    |   |   | 35,046,842  |   |   |   | 55,244,142   |   |   |   | 67,163,831 |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Effect      of exchange rate changes on cash and cash equivalents                 |   |   | 97,587      |   |   |   | 762,732      |   |   |   | 2,193,293 |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Net      (decrease) / increase in cash and cash equivalents                       |   |   | (11,956,229 | )      |   |   | (6,903,042   | )      |   |   | 21,510,321 |   |
| Cash      and cash equivalents at the beginning of year                           |   |   | 33,055,784  |   |   |   | 21,099,555   |   |   |   | 14,196,513 |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Cash      and cash equivalents at the end of year                                 |   | $      | 21,099,555  |   |   | $      | 14,196,513   |   |   | $ | 35,706,834 |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Supplemental      disclosure of cash flow information:                            |   |   |        |   |   |   |         |   |   |   |   |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Cash      received during the year for:                                           |   |   |        |   |   |   |         |   |   |   |   |   |
| Bills      receivable discounted to banks                                         |   | $      | 19,813,271  |   |   | $      | 7,019,450    |   |   | $ | 18,000,115 |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Proceeds      from disposal of trading securities                                 |   | $      | 3,981,274   |   |   | $      | -            |   |   | $ | - |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Cash      paid during the year for:                                               |   |   |        |   |   |   |         |   |   |   |   |   |
| Income      taxes                                                                 |   | $      | 747,548     |   |   | $      | 306,992      |   |   | $ | 141,918 |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Interest,      net of amounts capitalized                                         |   | $      | 1,874,351   |   |   | $      | 5,659,556    |   |   | $ | 9,615,904 |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Purchases      of trading securities                                              |   | $      | 3,702,014   |   |   | $      | -            |   |   | $ | - |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Investing      activities not requiring the use of cash and cash    equivalents:  |   |   |        |   |   |   |         |   |   |   |   |   |
| Sale      of equipment in exchange for inventories                                |   | $      | 1,076,226   |   |   | $      | -            |   |   | $ | - |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Purchase      of equipment in exchange for                                        |   |   |        |   |   |   |         |   |   |   |   |   |
| settlement      of prepayments and other receivables                              |   | $      | 561,588     |   |   | $      | -            |   |   | $ | - |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Non-cash      movements affecting financing transactions:                         |   |   |        |   |   |   |         |   |   |   |   |   |
| 2006      escrow shares donated by Mr. Xiangqian Li and release to      investors |   | $      | -           |   |   | $      | 7,955,358    |   |   | $ | - |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| 2005      escrow shares donated by Mr. Xiangqian Li                               |   | $      | -           |   |   | $      | -            |   |   | $ | 6,146,331 |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| 2005      escrow shares settlement                                                |   | $      | -           |   |   | $      | -            |   |   | $ | 2,079,721 |   |
|                                                                              |   |   |        |   |   |   |         |   |   |   |   |   |
| Government      grants to subsidize additional cost of land use rights            |   | $      | -           |   |   | $      | -            |   |   | $ | 7,889,991 |   |

----

| 1.  | Principal      Activities, Basis of Presentation and  Organization |
|----------|--------------------------------------------------------------------|

----

----

----

| 2  | Summary      of Significant Accounting Policies andPractices |
|---------|--------------------------------------------------------------|

| (a)  | Principles      of Consolidation |
|-----------|----------------------------------|

| (b)  | Cash      and Cash Equivalents |
|-----------|--------------------------------|

| (c)  | Trade      Accounts Receivable |
|-----------|--------------------------------|

| (d)  | Inventories |
|-----------|-------------|

| (e)  | Investment      Securities |
|-----------|----------------------------|

----

| (e) | Investment      Securities (continued) |
|-----|----------------------------------------|

| (f) | Property,      Plant and Equipment |
|-----|------------------------------------|

| Buildings                    | 30-40      years |
|------------------------------|------------------|
| Machinery      and equipment | 5-12      years  |
| Office      equipment        | 5      years     |
| Motor      vehicles          | 8      years     |
| Leasehold      improvements  | 1-5      years   |

| (g) | Lease      Prepayments |
|-----|------------------------|

| (h) | Foreign      Currency Transactions andTranslation |
|-----|---------------------------------------------------|

----

| (h) | Foreign      Currency Transactions and Translation  (continued) |
|-----|-----------------------------------------------------------------|

| September      30, 2008                               |                                  |
|-------------------------------------------------------|---------------------------------------|
| Balance      sheet                                    | RMB      6.8183 to US$1.00            |
| Statement      of operations and comprehensive income | RMB      7.0976 to US$1.00            |
|                                                  |                                  |
| September      30, 2007                               |                                  |
| Balance      sheet                                    | RMB      7.5108 to US$1.00            |
| Statement      of operations and comprehensive income | RMB      7.7127 to US$1.00            |
|                                                  |                                  |
| September      30, 2006                               |                                  |
| Balance      sheet                                    | RMB 7.90870 to US$1.00 |
| Statement      of operations and comprehensive income | RMB      8.02857 to US$1.00           |

| (i) | Intangible      Assets |
|-----|------------------------|

| Trademarks | 10      years |
|------------|---------------|
| Technology | 7      years  |
| Software   | 5      years  |

| (j) | Impairment      of Long-lived Assets |
|-----|--------------------------------------|

----

| (k) | Revenue      Recognition |
|-----|--------------------------|

| (l) | Cost      of Revenues |
|-----|-----------------------|

| (m) | Income      Taxes |
|-----|-------------------|

| (n) | Research      and Development and AdvertisingExpenses |
|-----|-------------------------------------------------------|

| (o) | Bills      Payable |
|-----|--------------------|

----

| (p) | Government      Grants |
|-----|------------------------|

|  (q) | Share-based      Compensation |
|-----------|-------------------------------|

----

| (r) | Retirement      and Other Postretirement Benefits |
|-----|---------------------------------------------------|

| (s) | Earnings      per share |
|-----|-------------------------|

----

| (t) | Use      of Estimates |
|-----|-----------------------|

| (u) | Segment      Reporting |
|-----|------------------------|

| (v) | Commitments      and Contingencies |
|-----|------------------------------------|

| (w) | Recently      Issued Accounting Standards |
|-----|-------------------------------------------|

----

----

| 3 | Pledged      Deposits |
|---|-----------------------|

|                                  |   | 2007   |      |   | 2008   |   |
|---------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                  |   |   |      |   |   |   |
| Pledged      deposits with banks for: |   |   |      |   |   |   |
| Construction      payable             |   | $      | -         |   |   | $      | 931,317 |   |
| Bills      payable                    |   |   | 4,594,727 |   |   |   | 3,517,927 |   |
|                                  |   | $      | 4,594,727 |   |   | $      | 4,449,244 |   |

| 4 | Trade      Accounts Receivable, net |
|---|-------------------------------------|

|                                       |   | 2007   |       |   | 2008   |   |
|--------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                       |   |   |       |   |   |   |
| Trade      accounts receivable             |   | $      | 57,928,281 |   |   | $      | 87,974,185 |   |
| Less:      Allowance for doubtful accounts |   |   | (3,021,617 | )      |   |   | (5,351,244 | ) |
|                                       |   |   |       |   |   |   |   |   |
|                                       |   |   | 54,906,664 |   |   |   | 82,622,941 |   |
| Bills      receivable                      |   |   | 8,244,208  |   |   |   | 117,347 |   |
|                                       |   |   |       |   |   |   |   |   |
|                                       |   | $      | 63,150,872 |   |   | $      | 82,740,288 |   |

|                                                    |   | 2006   |      |    | 2007   |   |      | 2008   |   |
|---------------------------------------------------------|--------|--------|-----------|---------|--------|--------|-----------|--------|--------|
|                                                    |   |   |      |    |   |   |      |   |   |
| Balance      at beginning of year                       |   | $      | 1,593,538 |    |   | $      | 1,063,285 |   |   | $ | 3,021,617 |   |
| (Reversal) /      addition ofbad debt expense,      net |   |   | (558,719  | )  |   |   | 1,852,213 |   |   |   | 1,943,139 |   |
| Foreign      exchange adjustment                        |   |   | 28,466    |    |   |   | 106,119   |   |   |   | 386,488 |   |
|                                                    |   |   |      |    |   |   |      |   |   |   |   |   |
| Balance      at end of year                             |   | $      | 1,063,285 |    |   | $      | 3,021,617 |   |   | $ | 5,351,244 |   |

----

| 5 | Inventories |
|---|-------------|

|                                    |   | 2007   |       |    | 2008   |   |
|-----------------------------------------|--------|--------|------------|---------|--------|--------|
|                                    |   |   |       |    |   |   |
| Raw      materials                      |   | $      | 15,245,732 |    |   | $      | 16,671,505 |   |
| Work-in-progress                        |   |   | 5,698,017  |    |   |   | 12,993,897 |   |
| Finished      goods                     |   |   | 40,776,958 |    |   |   | 40,638,380 |   |
|                                    |   |   |       |    |   |   |   |   |
|                                    |   |   | 61,720,707 |    |   |   | 70,303,782 |   |
| Provision      for obsolete inventories |   |   | (1,893,475 | )  |   |   | (2,720,722 | ) |
|                                    |   |   |       |    |   |   |   |   |
|                                    |   | $      | 59,827,232 |    |   | $      | 67,583,060 |   |

| 6 | Prepayments      and Other Receivables |
|---|----------------------------------------|

|                                          |   | 2007   |      |   | 2008   |   |
|-----------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                          |   |   |      |   |   |   |
| Prepayments      for raw materials and others |   | $      | 925,187   |   |   | $      | 866,561 |   |
| Other      receivables                        |   |   | 740,088   |   |   |   | 3,605,465 |   |
| Less:      Allowance for doubtful accounts    |   |   | (8,781    | )      |   |   | (9,534 | ) |
|                                          |   |   |      |   |   |   |   |   |
|                                          |   | $      | 1,656,494 |   |   | $      | 4,462,492 |   |

| 7 | Income      Taxes |
|---|-------------------|

----

| (a) | Income      taxes in the consolidated statements of operations and comprehensive      income |
|-----|----------------------------------------------------------------------------------------------|

|                                 | 2006   |   | 2007    |   | 2008   |   |
|--------------------------------------|--------|--------|---------|--------|--------|--------|
|                                 |   |   |    |   |   |   |
| Current      tax                     |   | $      | 520,082 |   |   | $      | 414,163 |   |   | $ | 107,166 |   |
| Deferred      tax                    |   |   | 72,810  |   |   |   | (609,684 | ) |   |   | (1,152,379 | ) |
| Income      tax expenses / (benefit) |   | $      | 592,892 |   |   | $      | (195,521 | ) |   | $ | (1,045,213 | ) |

----

|                                                                               |   | 2006   |       |   | 2007   |   |     | 2008   |   |
|------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|----------|--------|--------|
|                                                                               |   |   |       |   |   |   |     |   |   |
| Income      / (loss) before income taxes                                           |   | $      | 20,757,458 |   |   | $      | 287,807  |   |   | $ | (8,985,813 | ) |
|                                                                               |   |   |       |   |   |   |     |   |   |   |   |   |
| Computed      “expected” income tax expense at 35%                     |   |   | 7,265,110  |   |   |   | 100,732  |   |   |   | (3,145,034 | ) |
| Change      in the balance of the valuation allowance for deferred tax      assets |   |   | 1,072,296  |   |   |   | 691,540  |   |   |   | 464,569 |   |
| Deferred      tax due to the enacted tax rate change                               |   |   | -          |   |   |   | -        |   |   |   | (697,928 | ) |
| Loss      of tax credit due to change of tax law                                   |   |   | -          |   |   |   | -        |   |   |   | 224,804 |   |
| Foreign      tax rate differential                                                 |   |   | (4,765,560 | )      |   |   | (730,303 | )      |   |   | (204,968 | ) |
| Non-taxable      income                                                            |   |   | (184,713   | )      |   |   | (624,936 | )      |   |   | (800,440 | ) |
| Non-deductible      expenses                                                       |   |   |       |   |   |   |     |   |   |   |   |   |
| -      Share-based compensation                                                    |   |   | 630,759    |   |   |   | 867,746  |   |   |   | 1,323,026 |   |
| -      Other non-deductible expenses                                               |   |   | 51,772     |   |   |   | 361,189  |   |   |   | 1,984,161 |   |
| Tax      holiday                                                                   |   |   | (3,476,772 | )      |   |   | (861,489 | )      |   |   | (193,403 | ) |
|                                                                               |   |   |       |   |   |   |     |   |   |   |   |   |
| Actual      income tax expenses / (benefit)                                        |   | $      | 592,892    |   |   | $      | (195,521 | )      |   | $ | (1,045,213 | ) |

|                                             |   | 2006   |      |   | 2007   |   |       | 2008   |   |
|--------------------------------------------------|--------|--------|-----------|--------|--------|--------|------------|--------|--------|
|                                             |   |   |      |   |   |   |       |   |   |
| Deferred      tax income                         |   | $      | (999,486  | )      |   | $      | (1,299,227 | )      |   | $ | (1,616,948 | ) |
| Valuation      allowance for deferred tax assets |   |   | 1,072,296 |   |   |   | 689,543    |   |   |   | 464,569 |   |
|                                             |   |   |      |   |   |   |       |   |   |   |   |   |
|                                             |   | $      | 72,810    |   |   | $      | (609,684   | )      |   | $ | (1,152,379 | ) |

----

| (b) | Deferred      taxation |
|-----|------------------------|

|                                        |   | 2007   |       |   | 2008   |   |
|---------------------------------------------|--------|--------|------------|--------|--------|--------|
| Deferred      tax assets                    |   |   |       |   |   |   |
|                                        |   |   |       |   |   |   |
| Short-term                                  |   |   |       |   |   |   |
| Trade      accounts receivable              |   | $      | 123,673    |   |   | $      | 973,311 |   |
| Inventories                                 |   |   | 76,675     |   |   |   | 461,097 |   |
| Accrued      expenses and other payables    |   |   | 90,132     |   |   |   | 285,254 |   |
| Tax      credit carried forward             |   |   | 212,436    |   |   |   | - |   |
|                                        |   |   |       |   |   |   |   |   |
| Net      short-term deferred tax assets     |   |   | 502,916    |   |   |   | 1,719,662 |   |
|                                        |   |   |       |   |   |   |   |   |
| Long-term                                   |   |   |       |   |   |   |   |   |
| Property,      plant and equipment          |   |   | -          |   |   |   | 6,543 |   |
| Net      operating loss carried forward     |   |   | 1,761,839  |   |   |   | 581,525 |   |
| Intangible      assets                      |   |   | 171,774    |   |   |   | - |   |
| Valuation      allowance                    |   |   | (1,761,839 | )      |   |   | (581,525 | ) |
|                                        |   |   |       |   |   |   |   |   |
| Net      long-term deferred tax assets      |   |   | 171,774    |   |   |   | 6,543 |   |
|                                        |   |   |       |   |   |   |   |   |
| Total      net deferred tax assets          |   | $      | 674,690    |   |   | $      | 1,726,205 |   |
|                                        |   |   |       |   |   |   |   |   |
| Deferred      tax assets / (liabilities):   |   |   |       |   |   |   |   |   |
|                                        |   |   |       |   |   |   |   |   |
| Long-term                                   |   |   |       |   |   |   |   |   |
| Intangible      assets                      |   | $      | -          |   |   | $      | 294,680 |   |
| Property,      plant and equipment          |   |   | (279,597   | )      |   |   | (386,080 | ) |
|                                        |   |   |       |   |   |   |   |   |
| Net      long-term deferred tax liabilities |   | $      | (279,597   | )      |   | $      | (91,400 | ) |
|                                        |   |   |       |   |   |   |   |   |
| Net      deferred tax assets                |   | $      | 395,093    |   |   | $      | 1,634,805 |   |

----

----

| 8 | Property,      Plant and Equipment, net |
|---|-----------------------------------------|

|                                                             |   | 2007   |        |   | 2008   |   |
|------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Buildings                                                        |   | $      | 70,380,985  |   |   | $      | 94,062,610 |   |
| Machinery      and equipment                                     |   |   | 59,405,092  |   |   |   | 89,999,435 |   |
| Office      equipment                                            |   |   | 1,088,032   |   |   |   | 1,590,015 |   |
| Motor      vehicles                                              |   |   | 1,135,616   |   |   |   | 1,083,278 |   |
|                                                             |   |   | 132,009,725 |   |   |   | 186,735,338 |   |
| Accumulated      depreciation                                    |   |   | (19,301,165 | )      |   |   | (33,033,996 | ) |
| Construction      in progress                                    |   |   | 12,578,715  |   |   |   | 36,116,818 |   |
| Prepayment      for acquisition of property, plant and equipment |   |   | 19,835,747  |   |   |   | 5,617,052 |   |
|                                                             |   | $      | 145,123,022 |   |   | $      | 195,435,212 |   |

|                                     |   | 2006   |      |   | 2007   |   |      | 2008   |   |
|------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
| Cost      of revenues                    |   | $      | 4,468,704 |   |   | $      | 6,274,424 |   |   | $ | 9,757,827 |   |
| Research      and development expenses   |   |   | 259,721   |   |   |   | 296,199   |   |   |   | 468,556 |   |
| Sales      and marketing expenses        |   |   | 539,412   |   |   |   | 591,583   |   |   |   | 636,301 |   |
| General      and administrative expenses |   |   | 466,861   |   |   |   | 1,455,911 |   |   |   | 1,652,456 |   |
|                                     |   | $      | 5,734,698 |   |   | $      | 8,618,117 |   |   | $ | 12,515,140 |   |

----

| 9 | Lease      Prepayments, net |
|---|-----------------------------|

|                          |   | 2007   |       |   | 2008   |   |
|-------------------------------|--------|--------|------------|--------|--------|--------|
| Lease      prepayments        |   | $      | 18,335,267 |   |   | $      | 33,009,123 |   |
| Accumulated      amortization |   |   | (450,831   | )      |   |   | (1,226,994 | ) |
|                          |   | $      | 17,884,436 |   |   | $      | 31,782,129 |   |

----

| 10 | Intangible      Assets, net |
|----|-----------------------------|

|                                              |   | 2007   |    |   | 2008   |   |
|---------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Trademarks,      computer software and technology |   | $      | 165,826 |   |   | $      | 244,314 |   |
| Less:      Accumulated amortization               |   |   | (44,788 | )      |   |   | (82,896 | ) |
|                                              |   | $      | 121,038 |   |   | $      | 161,418 |   |

| 11 | Short-term      Bank Loans |
|----|----------------------------|

|                                       |   | 2007   |       |   | 2008   |   |
|--------------------------------------------|--------|--------|------------|--------|--------|--------|
| Inventories      (Note 5)                  |   | $      | 19,971,241 |   |   | $      | 21,999,619 |   |
| Machinery      and equipment, net (Note 8) |   |   | 18,299,368 |   |   |   | 14,058,213 |   |
|                                       |   | $      | 38,270,609 |   |   | $      | 36,057,832 |   |

| 12 | Long-term      Bank Loans |
|----|---------------------------|

----

| Fiscal      years ending on September 30, |   |   |       |   |
|-------------------------------------------|--------|--------|------------|--------|
| 2009                                      |   | $      | 8,799,848  |   |
| 2010                                      |   |   | 16,133,054 |   |
| 2011                                      |   |   | 17,599,694 |   |
| 2012                                      |   |   | 21,999,618 |   |
|                                      |   |   |       |   |
|                                      |   | $      | 64,532,214 |   |

| 13 | Accrued      Expenses and Other Payables |
|----|------------------------------------------|

|                                                 |   | 2007   |       |   | 2008   |   |
|------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Land      use rights payable                         |   | $      | 528,976    |   |   | $      | - |   |
| Construction      costs payable                      |   |   | 3,062,469  |   |   |   | 1,995,060 |   |
| Equipment      purchases payable                     |   |   | 4,682,908  |   |   |   | 9,310,546 |   |
| Customer      deposits (Note 13(a))                  |   |   | 1,647,489  |   |   |   | 1,916,412 |   |
| Other      payables and accruals (Note 13(b))        |   |   | 4,896,538  |   |   |   | 7,859,769 |   |
| Staff      and workers’ welfare and bonus fund |   |   | 648,812    |   |   |   | 499,395 |   |
|                                                 |   | $      | 15,467,192 |   |   | $      | 21,581,182 |   |

| (a)  | Customer      deposits were received from customers in connection with orders of      products to be delivered in futureperiods. |
|-----------|----------------------------------------------------------------------------------------------------------------------------------|

| (b)  | Other      payables and accruals included deferred income from receipts of government      grants amounting to US$579,166 and US$637,989 as of September 30, 2007 and      2008 respectively. |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 14  | Shareholders’      Equity |
|----------|---------------------------------|

----

| 14 | Shareholders’      Equity (continued) |
|----|---------------------------------------------|

| 15 | Net      Income / (Loss) per Share |
|----|------------------------------------|

| 16 | Finance      Costs, net |
|----|-------------------------|

|                              |   | 2006   |      |   | 2007   |   |      | 2008   |   |
|-----------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
| Total      interest cost incurred |   | $      | 2,750,102 |   |   | $      | 5,404,305 |   |   | $ | 10,007,094 |   |
| Less:      Interest capitalized   |   |   | (460,486  | )      |   |   | (451,226  | )      |   |   | (300,805 | ) |
| Interest      income              |   |   | (523,135  | )      |   |   | (283,264  | )      |   |   | (87,949 | ) |
| Bank      charges                 |   |   | 121,510   |   |   |   | 186,715   |   |   |   | 779,054 |   |
| Exchange      loss                |   |   | 322       |   |   |   | 368,270   |   |   |   | 623,414 |   |
|                              |   | $      | 1,888,313 |   |   | $      | 5,224,800 |   |   | $ | 11,020,808 |   |

----

| 17 | Pension      and Other Postretirement Benefits |
|----|------------------------------------------------|

|                                     |   | 2006   |      |   | 2007   |   |    | 2008   |   |
|------------------------------------------|--------|--------|-----------|--------|--------|--------|---------|--------|--------|
| Cost      of revenues                    |   | $      | 844,182   |   |   | $      | 279,191 |   |   | $ | 717,353 |   |
| Research      and development expenses   |   |   | 42,456    |   |   |   | 57,575  |   |   |   | 85,227 |   |
| Sales      and marketing expenses        |   |   | 115,557   |   |   |   | 142,739 |   |   |   | 86,551 |   |
| General      and administrative expenses |   |   | 107,076   |   |   |   | 160,627 |   |   |   | 200,315 |   |
|                                     |   | $      | 1,109,271 |   |   | $      | 640,132 |   |   | $ | 1,089,446 |   |

| 18 | Share-based      Compensation |
|----|-------------------------------|

| Numbers of Share |   | Percentage ofOptions Issued |   | InitialVesting Date |
|----------------------------|--------|---------------------------------------|--------|--------------------------|
| 800,000                    |   | 40%                                   |   | July      1, 2007        |
| 600,000                    |   | 30%                                   |   | January      1, 2008     |
| 600,000                    |   | 30%                                   |   | July      1, 2008        |
| 2,000,000                  |   | 100%                                  |   |                     |

----

| 18 | Share-based      Compensation (continued) |
|----|-------------------------------------------|

|                                      | Number ofshares |   | Weightedaverageexercise priceper share |   | Weightedaverageremainingcontractualterm |           | Aggregateintrinsicvalue (1) |   |
|-------------------------------------------|----------------------|--------|--------------------------------------------------|--------|-----------------------------------------|----------------|----------------------------------|--------|
| Outstanding      as of October 1, 2007    | 400,000              |   | $                                                | 6.25   |                                    |           |                             |   |   |   |
| Exercised                                 | 200,000              |   |                                             | 6.25   |                                    |           |                             |   |   |   |
| Forfeited                                 | -                    |   |                                             | -      |                                    |           |                             |   |   |   |
| Cancelled                                 | -                    |   |                                             | -      |                                    |           |                             |   |   |   |
|                                      |                 |   |                                             |   |                                    |           |                             |   |   |   |
| Outstanding      as of September 30, 2008 | 200,000              |   | $                                                | 6.25   |                                    | 2.6 years |                             | $      | - |   |
|                                      |                 |   |                                             |   |                                    |           |                             |   |   |   |
| Exercisable      as of September 30, 2008 | 200,000              |   | $                                                | 6.25   |                                    | 2.6 years |                             | $      | - |   |

|   | (1) | Aggregate      intrinsic value represents the value of the Company’s closing stock price      on September 30, 2008 (US$3.60) in excess of the exercise price multiplied      by the number of options outstanding or  exercisable. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Expected      volatility     |   |         | 59.85  | % |
|------------------------------|--------|--------------|--------|---|
| Expected      dividends      |   | Nil          |   |
| Expected      life           |   | 6      years |   |
| Risk-free      interest rate |   |         | 4.13   | % |

----

| 18 | Share-based      Compensation (continued) |
|----|-------------------------------------------|

|                                      | Number ofShares |   | Weightedaverage exerciseprice per share |   | Weighted averageremainingcontractual term |           | Aggregate intrinsicvalue (1) |   |
|-------------------------------------------|----------------------|--------|--------------------------------------------------------|--------|-----------------------------------------------------|----------------|----------------------------------------|--------|
|                                      |                 |   |                                                   |   |                                                |           |                                   |   |
| Outstanding      as of October 1, 2007    | 1,418,500            |   | $                                                      | 3.28   |                                                |           |                                   |   |   |   |
| Exercised                                 | 77,500               |   |                                                   | 3.27   |                                                |           |                                   |   |   |   |
| Forfeited                                 | 41,000               |   |                                                   | 3.27   |                                                |           |                                   |   |   |   |
| Cancelled                                 | -                    |   |                                                   | -      |                                                |           |                                   |   |   |   |
|                                      |                 |   |                                                   |   |                                                |           |                                   |   |   |   |
| Outstanding      as of September 30, 2008 | 1,300,000            |   | $                                                      | 3.29   |                                                | 4.6 years |                                   | $      | 403,000 |   |
|                                      |                 |   |                                                   |   |                                                |           |                                   |   |   |   |
| Exercisable      as of September 30, 2008 | 457,500              |   | $                                                      | 3.29   |                                                | 4.0 years |                                   | $      | 141,825 |   |

|   | (1) | Aggregate      intrinsic value represents the value of the Company’s closing stock price      on September 30, 2008 (US$3.60) in excess of the exercise price multiplied      by the number of options outstanding or  exercisable. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Expected      volatility     |   |              | 69.44  | % |
|------------------------------|--------|-------------------|--------|---|
| Expected      dividends      |   | Nil               |   |
| Expected      life           |   | 4 -      10 years |   |
| Risk-free      interest rate |   |              | 5.09   | % |

----

| 18 | Share-based      Compensation (continued) |
|----|-------------------------------------------|

|                                      | Number ofshares |   | Weightedaverageexercise priceper share |   | Weightedaverageremainingcontractualterm |           | Aggregateintrinsicvalue (1) |   |
|-------------------------------------------|----------------------|--------|--------------------------------------------------|--------|-----------------------------------------|----------------|----------------------------------|--------|
| Outstanding      as of October 1, 2007    | -                    |   | $                                                | -      |                                    |           |                             |   |   |   |
| Granted      on January 28, 2008          | 360,000              |   |                                             | 4.30   |                                    |           |                             |   |   |   |
| Exercised                                 | -                    |   |                                             | -      |                                    |           |                             |   |   |   |
| Forfeited                                 | -                    |   |                                             | -      |                                    |           |                             |   |   |   |
| Cancelled                                 | -                    |   |                                             | -      |                                    |           |                             |   |   |   |
|                                      |                 |   |                                             |   |                                    |           |                             |   |   |   |
| Outstanding      as of September 30, 2008 | 360,000              |   | $                                                | 4.30   |                                    | 4.3      years |                             | $      | - |   |
|                                      |                 |   |                                             |   |                                    |           |                             |   |   |   |
| Exercisable      as of September 30, 2008 | 60,000               |   | $                                                | 4.30   |                                    | 4.3      years |                             | $      | - |   |

| Expected      volatility     |   |         | 120.23 | % |
|------------------------------|--------|--------------|--------|---|
| Expected      dividends      |   | Nil          |   |
| Expected      life           |   | 5      years |   |
| Risk-free      interest rate |   |         | 3.59   | % |

----

| 18 | Share-based      Compensation (continued) |
|----|-------------------------------------------|

|                                      | Number ofshares |   | Weightedaverageexercise priceper share |   | Weightedaverageremainingcontractualterm |           | Aggregateintrinsicvalue (1) |   |
|-------------------------------------------|----------------------|--------|--------------------------------------------------|--------|-----------------------------------------|----------------|----------------------------------|--------|
| Outstanding      as of October 1, 2007    | -                    |   | $                                                | -      |                                    |           |                             |   |   |   |
| Granted      on May 29, 2008              | 1,250,000            |   |                                             | 4.18   |                                    |           |                             |   |   |   |
| Exercised                                 | -                    |   |                                             | -      |                                    |           |                             |   |   |   |
| Forfeited                                 | -                    |   |                                             | -      |                                    |           |                             |   |   |   |
| Cancelled                                 | -                    |   |                                             | -      |                                    |           |                             |   |   |   |
|                                      |                 |   |                                             |   |                                    |           |                             |   |   |   |
| Outstanding      as of September 30, 2008 | 1,250,000            |   | $                                                | 4.18   |                                    | 4.7      years |                             | $      | - |   |
|                                      |                 |   |                                             |   |                                    |           |                             |   |   |   |
| Exercisable      as of September 30, 2008 | 90,000               |   | $                                                | 4.18   |                                    | 4.7      years |                             | $      | - |   |

| Expected      volatility     |   |         | 59.48  | % |
|------------------------------|--------|--------------|--------|---|
| Expected      dividends      |   | Nil          |   |
| Expected      life           |   | 5      years |   |
| Risk-free      interest rate |   |         | 4.01   | % |

----

| 18 | Share-based      Compensation (continued) |
|----|-------------------------------------------|

| Expected      volatility          |   |           | 89.51  | % |
|-----------------------------------|--------|----------------|--------|---|
| Expected      dividends           |   | Nil            |   |
| Expected      life                |   | 4.4      years |   |
| Risk-free interest      rate |   |           | 4.61   | % |

----

| 18 | Share-based      Compensation (continued) |
|----|-------------------------------------------|

| Number of Shares |   | Percentage of Options Issued |   | Initial Vesting Date |
|----------------------------|--------|---------------------------------------------|--------|--------------------------------|
|                       |   |                                        |   |                           |
| 365,998                    |   | 40%                                         |   | July      1, 2007              |
| 274,498                    |   | 30%                                         |   | January      1, 2008           |
| 274,498                    |   | 30%                                         |   | July      1, 2008              |
|                       |   |                                        |   |                           |
| 914,994                    |   | 100%                                        |   |                           |

|                                     |           |   | Weighted average |   |
|------------------------------------------|----------------|--------|-----------------------|--------|
|                                     | Number of |   | exercise price   |   |
|                                     | shares         |   | per share        |   |
|                                     |           |   |                  |   |
| Non-vested      as of October 1, 2007    | 530,560        |   |                  | 6.25   |   |
| Vested                                   | 530,560        |   |                  | 6.25   |   |
| Forfeited                                | -              |   |                  | -      |   |
|                                     |           |   |                  |   |   |
| Non-vested      as of September 30, 2008 | -              |   | $                     | -      |   |

----

| 19 | Fair      Value of Financial Instruments |
|----|------------------------------------------|

| 20 | Commitments      and Contingencies |
|----|------------------------------------|

| (i) | Capital      Commitments |
|-----|--------------------------|

|                               |   | 2007   |       |   | 2008   |   |
|------------------------------------|--------|--------|------------|--------|--------|--------|
|                               |   |   |       |   |   |   |
| For      construction of buildings |   | $      | -          |   |   | $      | 5,957,292 |   |
| For      purchases of equipment    |   |   | 12,312,763 |   |   |   | 4,313,237 |   |
|                               |   |   |       |   |   |   |   |   |
|                               |   | $      | 12,312,763 |   |   | $      | 10,270,529 |   |

| (ii) | Land      Use Rights and Property OwnershipCertificate |
|------|--------------------------------------------------------|

----

| 20 | Commitments      and Contingencies (continued) |
|----|------------------------------------------------|

| (iii) | Guarantees |
|-------|------------|

|                                                                   |   | 2007   |      |   | 2008   |   |
|------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                                   |   |   |      |   |   |   |
| Guaranteed      for Shenzhen Tongli Hi-tech Co. Ltd. -                 |   |   |      |   |   |   |
| a      non-related party                                               |   | $      | -         |   |   | $      | 2,933,282 |   |
| Guaranteed      for Hunan Reshine New Material Ltd. -                  |   |   |      |   |   |   |   |   |
| a      non-related party                                               |   |   | 5,325,664 |   |   |   | 5,866,565 |   |
| Guaranteed      for Nanjing Special Metal                              |   |   |      |   |   |   |   |   |
| Equipment      Co. Ltd. - a non-related party                          |   |   | 1,331,416 |   |   |   | 1,466,641 |   |
| Guaranteed      for Siping Juyuan Hanyang Plate Heat                   |   |   |      |   |   |   |   |   |
| Exchanger      Co. Ltd. - a non-related party                          |   |   | -         |   |   |   | 2,933,282 |   |
| Guaranteed      for Shenzhen B&G Technology Development Co. Ltd. - |   |   |      |   |   |   |   |   |
| a      non-related party                                               |   |   | -         |   |   |   | 3,666,603 |   |
|                                                                   |   |   |      |   |   |   |   |   |
|                                                                   |   | $      | 6,657,080 |   |   | $      | 16,866,373 |   |

| (iv)  | Outstanding      Discounted Bills and TransferredBills |
|------------|--------------------------------------------------------|

|                       |   | 2007   |       |   | 2008   |   |
|----------------------------|--------|--------|------------|--------|--------|--------|
|                       |   |   |       |   |   |   |
| Bank      acceptance bills |   | $      | 17,851,850 |   |   | $      | 34,721,831 |   |

----

| 20 | Commitments      and Contingencies (continued) |
|----|------------------------------------------------|

| (v) | Litigation      and claims |
|-----|----------------------------|

| 21 | Deferred      revenue |
|----|-----------------------|

| 22 | Significant      Concentrations |
|----|---------------------------------|

| (a) | Customers      and Credit Concentrations |
|-----|------------------------------------------|

|                  |   | 2006   |       |   | 2007   |   |   | 2008   |   |
|-----------------------|--------|--------|------------|--------|--------|--------|--------|--------|--------|
|                  |   |   |       |   | %      |   |   |   |   |   | % |   |   |   |   |   | % |   |
|                  |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| A123System,      Inc. |   | $      | 18,537,334 |   |   |   | 13     |   |   | $ | 20,586,775 |   |   |   | 14 |   |   | $ | - |   |   |   | - |   |

----

| (b) | Credit      Risk |
|-----|------------------|

| 23 | Segment      Information |
|----|--------------------------|

|                     |   | 2006   |        |   | 2007   |   |   | 2008   |   |
|--------------------------|--------|--------|-------------|--------|--------|--------|--------|--------|--------|
|                     |   |   |        |   | %      |   |   |   |   |   | % |   |   |   |   |   | % |   |
|                     |   |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Steel-case      Cell     |   | $      | 64,299,407  |   |   |   | 44.71  |   |   | $ | 34,868,786 |   |   |   | 23.91 |   |   | $ | 29,299,493 |   |   |   | 11.94 |   |
| Aluminum-case      cell  |   |   | 49,514,304  |   |   |   | 34.43  |   |   |   | 69,916,244 |   |   |   | 47.93 |   |   |   | 130,109,946 |   |   |   | 53.03 |   |
| High-power      lithium- |   |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| phosphate      cell      |   |   | 18,537,334  |   |   |   | 12.89  |   |   |   | 20,561,865 |   |   |   | 14.10 |   |   |   | - |   |   |   | - |   |
| Battery      pack        |   |   | 9,842,539   |   |   |   | 6.84   |   |   |   | 11,797,560 |   |   |   | 8.09 |   |   |   | 25,500,658 |   |   |   | 10.40 |   |
| Cylindrical      cell    |   |   | 607,608     |   |   |   | 0.42   |   |   |   | 3,421,901 |   |   |   | 2.34 |   |   |   | 42,566,664 |   |   |   | 17.35 |   |
| Polymer      cell        |   |   | 1,027,824   |   |   |   | 0.71   |   |   |   | 5,294,543 |   |   |   | 3.63 |   |   |   | 17,870,808 |   |   |   | 7.28 |   |
|                     |   |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                     |   | $      | 143,829,016 |   |   |   | 100.00 |   |   | $ | 145,860,899 |   |   |   | 100.00 |   |   | $ | 245,347,569 |   |   |   | 100.00 |   |

|                          |   | 2006   |        |   | 2007   |   |   | 2008   |   |
|-------------------------------|--------|--------|-------------|--------|--------|--------|--------|--------|--------|
|                          |   |   |        |   | %      |   |   |   |   |   | % |   |   |   |   |   | % |   |
|                          |   |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| PRC      Mainland             |   | $      | 96,669,615  |   |   |   | 67.21  |   |   | $ | 105,567,176 |   |   |   | 72.38 |   |   | $ | 175,302,425 |   |   |   | 71.45 |   |
| PRC      Taiwan               |   |   | 4,824,811   |   |   |   | 3.35   |   |   |   | 7,025,209 |   |   |   | 4.82 |   |   |   | 41,904,752 |   |   |   | 17.08 |   |
| India                         |   |   | -           |   |   |   | -      |   |   |   | 4,299,314 |   |   |   | 2.95 |   |   |   | 5,660,586 |   |   |   | 2.31 |   |
| United      States of America |   |   | 18,641,035  |   |   |   | 12.96  |   |   |   | 20,740,356 |   |   |   | 14.22 |   |   |   | 75,030 |   |   |   | 0.03 |   |
| Hong      Kong, China         |   |   | 17,220,619  |   |   |   | 11.98  |   |   |   | 6,417,931 |   |   |   | 4.40 |   |   |   | 19,955,673 |   |   |   | 8.13 |   |
| The      Republic of Turkey   |   |   | 4,622,618   |   |   |   | 3.21   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Others                        |   |   | 1,850,318   |   |   |   | 1.29   |   |   |   | 1,810,913 |   |   |   | 1.23 |   |   |   | 2,449,103 |   |   |   | 1.00 |   |
|                          |   |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                          |   | $      | 143,829,016 |   |   |   | 100.00 |   |   | $ | 145,860,899 |   |   |   | 100.00 |   |   | $ | 245,347,569 |   |   |   | 100.00 |   |

----

| 24 | China      BAK Battery, Inc. (Parent Company) |
|----|-----------------------------------------------|

|                                  |   | 2007   |        |   | 2008   |   |
|---------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                  |   |   |        |   |   |   |
| Cash      and cash equivalents        |   | $      | 19,114      |   |   | $      | 34 |   |
| Other      receivables                |   | $      | -           |   |   | $      | 86,709 |   |
| Investments      in subsidiaries      |   | $      | 131,589,986 |   |   | $      | 173,854,017 |   |
|                                  |   |   |        |   |   |   |   |   |
| Total      assets                     |   | $      | 131,609,100 |   |   | $      | 173,940,760 |   |
|                                  |   |   |        |   |   |   |   |   |
| Other      current liabilities        |   | $      | 4,877,188   |   |   | $      | 6,868,760 |   |
|                                  |   |   |        |   |   |   |   |   |
| Total      liabilities                |   | $      | 4,877,188   |   |   | $      | 6,868,760 |   |
|                                  |   |   |        |   |   |   |   |   |
|                                  |   |   |        |   |   |   |   |   |
| Total      shareholders’ equity |   | $      | 126,731,912 |   |   | $      | 167,072,000 |   |
|                                  |   |   |        |   |   |   |   |   |
| Total      liabilities and            |   |   |        |   |   |   |   |   |
| shareholders’      equity       |   | $      | 131,609,100 |   |   | $      | 173,940,760 |   |

----

|                                     |   |  2006 |       |   | 2007   |   |       | 2008   |   |
|------------------------------------------|--------|------------|------------|--------|--------|--------|------------|--------|--------|
|                                     |   |       |       |   |   |   |       |   |   |
| General      and administrative expenses |   | $          | (3,063,704 | )      |   | $      | (1,970,123 | )      |   | $ | (2,664,359 | ) |
| Investment      income / (loss)          |   |       | 23,228,270 |   |   |   | 2,453,451  |   |   |   | (5,276,241 | ) |
|                                     |   |       |       |   |   |   |       |   |   |   |   |   |
| Income      / (loss) before income taxes |   |       | 20,164,566 |   |   |   | 483,328    |   |   |   | (7,940,600 | ) |
| Income      taxes                        |   |       | -          |   |   |   | -          |   |   |   | - |   |
|                                     |   |       |       |   |   |   |       |   |   |   |   |   |
| Net      income / (loss)                 |   | $          | 20,164,566 |   |   | $      | 483,328    |   |   | $ | (7,940,600 | ) |

|                                                           |   | 2006   |        |   | 2007   |   |       | 2008   |   |
|----------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|------------|--------|--------|
| Cash      flow from operating activities                       |   |   |        |   |   |   |       |   |   |
|                                                           |   |   |        |   |   |   |       |   |   |
| Net      income / (loss)                                       |   | $      | 20,164,566  |   |   | $      | 483,328    |   |   | $ | (7,940,600 | ) |
| Adjustment      to reconcile net income / (loss)               |   |   |        |   |   |   |       |   |   |   |   |   |
| to      net cash provided / (used in) by operating activities: |   |   |        |   |   |   |       |   |   |   |   |   |
| Share-based      compensation                                  |   |   | 131,320     |   |   |   | 79,747     |   |   |   | 47,086 |   |
| Investment      loss / (income)                                |   |   | (23,228,270 | )      |   |   | (2,453,451 | )      |   |   | 5,276,241 |   |
| Changes      in operating assets and liabilities:              |   |   |        |   |   |   |       |   |   |   |   |   |
| Other      receivables                                         |   |   | -           |   |   |   | -          |   |   |   | (86,709 | ) |
| Other      liabilities                                         |   |   | 2,952,273   |   |   |   | 1,889,601  |   |   |   | 1,991,572 |   |
|                                                           |   |   |        |   |   |   |       |   |   |   |   |   |
| Net      cash provided by / (used in) operating activities     |   |   | 19,889      |   |   |   | (775       | )      |   |   | (712,410 | ) |

----

| Cash      flow from investing activities          |   |   |   |   |   |   |   |   |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Advances      to subsidiaries                     |   |   | -      |   |   |   | -      |   |   |   | (28,545,878 | ) |
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      cash used in investing activities        |   |   | -      |   |   |   | -      |   |   |   | (28,545,878 | ) |
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flow from financing activities          |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds      from issuance of capital stock, net |   |   | -      |   |   |   | -      |   |   |   | 29,239,208 |   |
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      cash provided by financing activities    |   |   | -      |   |   |   | -      |   |   |   | 29,239,208 |   |
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      increase / (decrease) in cash and        |   |   |   |   |   |   |   |   |   |   |   |   |
| cash      equivalents                             |   |   | 19,889 |   |   |   | (775   | )      |   |   | (19,080 | ) |
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents                    |   |   |   |   |   |   |   |   |   |   |   |   |
| at      the beginning of year                     |   |   | -      |   |   |   | 19,889 |   |   |   | 19,114 |   |
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents                    |   |   |   |   |   |   |   |   |   |   |   |   |
| at      the end of year                           |   | $      | 19,889 |   |   | $      | 19,114 |   |   | $ | 34 |   |

| 25 | Subsequent      Events |
|----|------------------------|

----

| CHINA BAK BATTERY, INC. |
|-------------------------|
|                    |
| By:                     | /s/ Xiangqian      Li |
|                    | Xiangqian      Li |
|                    | Director,      Chairman of the Board, |
|                    | President      and Chief Executive Officer |

| Signature                       |   | Title                                                                                                                     |
|---------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|
|                            |   |                                                                                                                      |
| /s/      Xiangqian Li           |   |                                                                                                                      |
| Name:      Xiangqian Li         |   | Director,      Chairman of the Board, President and Chief Executive Officer (Principal      Executive Officer)            |
|                            |   |                                                                                                                      |
| /s/      Tony Shen              |   |                                                                                                                      |
| Name:      Tony Shen            |   | Chief      Financial Officer, Secretary and Treasurer (Principal Financial Officer      and Principal Accounting Officer) |
|                            |   |                                                                                                                      |
| /s/      Huanyu Mao             |   |                                                                                                                      |
| Name:      Huanyu Mao           |   | Director,      Chief Operating Officer and Chief Technical Officer                                                        |
|                            |   |                                                                                                                      |
| /S/      Charlene Spoede Budd   |   |                                                                                                                      |
| Name:      Charlene Spoede Budd |   | Director                                                                                                                  |
|                            |   |                                                                                                                      |
| /s/      Chunzhi Zhang          |   |                                                                                                                      |
| Name:      Chunzhi Zhang        |   | Director                                                                                                                  |
|                            |   |                                                                                                                      |
| /s/      Richard B. Goodner     |   |                                                                                                                      |
| Name:      Richard B. Goodner   |   | Director                                                                                                                  |

----