UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  FORM 10-KSB/A
                                (Amendment No. 1)

                                   (Mark One)

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

                  For the fiscal year ended September 30, 2005

                                       OR

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

              For the transition period ____________to ____________

                        Commission file number 000-49712

                             CHINA BAK BATTERY, INC.
                 (Name of small business issuer in its charter)

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

 BAK Industrial Park, No. 1 BAK Street                             518119
    Kuichong Town, Longgang District                             (Zip Code)
  Shenzhen, People's Republic of China
(Address of principal executive offices)

       Issuer's telephone number, including area code: (86-755) 8977-0093

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

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

Check whether the issuer is not required to file reports  pursuant to Section 13
of 15(d) of the Exchange Act [ ]

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports),  and
(2) has been subject to such filing  requirements  for the past 90 days. YES [X]
NO [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B contained  herein,  and none will be  contained,  to the best of
registrant's   knowledge,   in  definitive   proxy  or  information   statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

The issuer's revenues for its most recent fiscal year were:  $101,921,583.

Indicate by check mark whether the  registrant is a shell company (as defined in
rule 12b-2 of the Exchange Act) YES [ ] NO [X]

The aggregate market value of the voting common stock held by  non-affiliates of
the  issuer,  based  on the  average  bid and  asked  price of such  stock,  was
$177,408,565.75 at November 30, 2005.

At November 30, 2005, the registrant had  outstanding  48,878,396  shares of par
value $.001 common stock.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

<PAGE>

                                TABLE OF CONTENTS


PART I.........................................................................1
   ITEM 1. DESCRIPTION OF BUSINESS.............................................1
   ITEM 2. PROPERTIES.........................................................18
   ITEM 3. LEGAL PROCEEDINGS..................................................19
   ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................19

PART II.......................................................................19
   ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND
           SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES...............19
   ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION
           AND FINANCIAL CONDITION............................................21
   ITEM 7. FINANCIAL STATEMENTS...............................................33
   ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE...............................................33

PART III......................................................................36
   ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS......36
   ITEM 10. EXECUTIVE COMPENSATION............................................38
   ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....39
   ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................41
   ITEM 13. EXHIBITS..........................................................41
   ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES............................44


















                                       i

<PAGE>


                                EXPLANATORY NOTE

This  Amendment  No. 1 to the  Annual  Report on Form  10-KSB for the year ended
September  30, 2005 of China BAK Battery,  Inc.  (the "Annual  Report") is filed
solely  for the  purpose  of  amending  and  restating  (i)  Part  II,  Item 6 -
Management's  Discussion  and Analysis of Results of  Operations  and  Financial
Condition  to include  additional  information  regarding  certain  transactions
occuring on January 11, 2006 in Liquidity and Capital  Resources and Off-Balance
Sheet  Transactions;  (ii) Part II, Item 8A Controls and  Procedures  to clarify
certain changes being made as a result of the restatements of certain  financial
statements and the effect of the  restatements  upon the conclusion of our Chief
Executive  Officer and Chief  Financial  Officer upon the  effectiveness  of our
disclosure  controls;  (iii)  Part  III to  include  information  we  previously
indicated would be incorporated by reference from our 2006 Proxy Statement; (iv)
Part IV,  Item 13 to  include  additional  information  in  Footnote  20 and add
Footnote 21 to the  footnotes  to our  financial  statements  and;  (v) to amend
Exhibit 21.1 to include an  additional  subsidiary  that was approved on January
10, 2006.  Except as  described  above,  no other  changes have been made to the
Annual  Report,  and we have  not  updated  the  disclosures  contained  in this
Amendment  No. 1 to the Annual  Report to reflect any events that  occurred at a
date subsequent to the filing of the Annual Report. The filing of this Amendment
No. 1 to the Annual Report is not a representation that any statements contained
in items of the Annual Report other than that information being amended are true
or complete as of any date subsequent to the date of the Annual Report.






















<PAGE>

                             CHINA BAK BATTERY, INC.

PART I

ITEM 1.  DESCRIPTION OF BUSINESS
         -----------------------

         Except as otherwise indicated by the context, references in this annual
report on Form  10-KSB to "we," "us," or "our" are to the  combined  business of
China BAK Battery,  Inc. ("CBBI") and its wholly-owned  direct  subsidiary,  BAK
International,  Ltd. ("BAK International") and BAK International's  wholly-owned
subsidiary,  Shenzhen BAK Battery  Co.,  Ltd.  ("BAK  Battery").  References  to
"China" or to the "PRC" are  references to the People's  Republic of China.  All
references to "dollars" or "$" refers to United States dollars.

Overview

         CBBI  conducts  its  operations   through  its   China-based   indirect
subsidiary,  BAK Battery.  Both CBBI and BAK International are holding companies
and do not conduct any revenue generating activities except through BAK Battery.
We  focus  on the  manufacture,  commercialization  and  distribution  of a wide
variety of standard and customized lithium ion rechargeable batteries for use in
a wide array of  applications.  We also have internal  research and  development
facilities engaged primarily in furthering lithium ion related technologies.  We
believe  that our  technologies  allow us to offer  batteries  that are flexibly
configured,  lightweight and generally  achieve longer  operating time than many
competing  batteries  currently  available.  We have focused on  manufacturing a
family of replacement lithium batteries for cellular telephones.  We also supply
rechargeable  lithium ion batteries for use in various other portable electronic
applications, including high-power handset telephones, laptop computers, digital
cameras, video camcorders, MP3 players and general industrial applications.

         Historically,  we have  manufactured  three types of  batteries:  steel
cell,  aluminum  cell and  cylindrical  cell. We deliver our products to packing
plants  operated by third  parties where the bare cells are packed in accordance
with specifications  established by certain manufacturers of cellular telephones
and other electronic products.  The majority of our income is generated from the
sale of steel cells.  However, we believe there is growth potential for aluminum
and cylindrical cells because of their wide applications.  In September 2005, we
began producing a fourth type of battery,  lithium  polymer.  Our current growth
strategy  includes  entering  into the original  equipment  manufacture  ("OEM")
battery market for mobile phone and portable electronic  applications worldwide.
We have  developed a program for producing  high power lithium ion battery cells
which will allow us inroads into  additional  battery  markets such as those for
power tools. We have begun marketing our high power lithium ion battery cells.

         We operate sales and service  branches in Beijing,  Shanghai,  Qingdao,
Xiamen, Quanzhou, Zhuhai, Fuzhou and Guangzhou in the PRC.

History

         We originally began operations as a Nevada corporation known as "Medina
Copy,  Inc." We were  incorporated in Nevada on October 4, 1999 and subsequently
changed our name to "Medina Coffee,  Inc." ("Medina Coffee") on October 6, 1999.
Medina  Coffee  commenced  operations  on December 1, 2002 and was  considered a
development  stage company.  Medina Coffee was formed originally for the purpose
of building a retail  specialty  coffee business that sold specialty  coffee and
espresso drinks through company owned and operated espresso carts. Medina Coffee
had incurred operating losses from its inception and therefore looked to combine
with a privately-held  company that was profitable or that management considered
to have growth potential.

         On January 20, 2005, we completed a stock exchange transaction with the
stockholders of BAK International. The exchange was consummated under Nevada law
pursuant to the terms of a Securities  Exchange  Agreement dated effective as of
January  20,  2005  by and  among  Medina  Coffee,  BAK  International  and  the
stockholders  of  BAK  International.   Pursuant  to  the  Securities   Exchange
Agreement, we issued 39,826,075 shares of our common stock, par value $0.001 per
share, to the  stockholders  of BAK  International,  representing  approximately
97.2% of our post-exchange  issued and outstanding common stock, in exchange for
100% of the outstanding  capital stock of BAK International.  Effective February
14, 2005, we changed our name from "Medina Coffee,  Inc." to "China BAK Battery,
Inc."



                                       1
<PAGE>

         BAK Battery was formed in August 2001 to manufacture and sell a variety
of standard  and  customized  lithium ion  rechargeable  batteries  for use in a
number of applications,  although primarily in cellular telephones. It commenced
revenue producing operations in June 2002. BAK International was incorporated in
Hong  Kong  on  December  29,  2003  under  the  Companies  Ordinance  at  BATCO
International  Limited (and  subsequently  changed its name to BAK International
Limited on  November  3, 2004) for the  purpose of  acquiring  all of the equity
ownership  interests in BAK Battery, a transaction which it completed on January
18, 2005.

Our Business Strategy

         We seek to  maintain  and  strengthen  our  position  as a provider  of
lithium ion batteries and related  services while  increasing the breadth of our
product line and improving the quality of our products.  In order to achieve our
objective, we plan to pursue the key strategies described below.

         o        Continuing to be a cost leader in an increasingly  competitive
                  market.  We  believe  we can  ensure  competitive  pricing  by
                  integrating  a  labor   intensive   production   process  with
                  high-tech, proprietary manufacturing equipment. We believe our
                  experience  in  designing   and  updating  key   manufacturing
                  equipment and operating  such equipment at a low cost gives us
                  a cost advantage over our competitors.

         o        Taking advantage of our ready production capacity and allowing
                  for increased production  capacity.  We believe our production
                  capacity  makes us more  reliable,  flexible and responsive in
                  terms of fulfilling  our  customers'  requirements  than other
                  providers.  As such,  existing and potential  competitors  may
                  find  it  more   difficult  to  compete  with  our  production
                  capabilities. The completion of our new manufacturing facility
                  should only enhance our production capacity.

         o        Enhanced  R  &  D  activities.  Upon  completion  of  our  new
                  facility,  we will have the space to enhance our  existing R&D
                  capabilities   through  the  addition  of  state  of  the  art
                  equipment and experienced personnel.

         o        Developing  our OEM business.  We believe that by entering the
                  OEM  market  for  lithium  ion  batteries,  we will be able to
                  significantly  increase  revenues.  In order to do so,  we are
                  currently   undergoing   certification   as   a   global   OEM
                  manufacturer  for the mobile phone industry.  To date, most of
                  certification  process is complete,  and we anticipate that we
                  will receive certification

         o        Expanding   our   product   lines  to   capture   new   market
                  opportunities.  We  have  developed  high  power  lithium  ion
                  battery  cells that can be used in power  tools.  Our  product
                  offering  is  currently  undergoing  testing  by  a  potential
                  customer.  We have  begun  sales  of our  high  power  lithium
                  battery  during our fourth  quarter of calendar  year 2005. In
                  addition,  we are beginning to produce lithium polymer battery
                  cells  that  can be  used  for  various  cellular  telephones,
                  portable electronic  applications,  Bluetooth technology,  and
                  similar types of  technology.  Lithium  polymer  batteries are
                  used for  applications  similar to those that utilize  lithium
                  ion aluminum cell batteries.  However, lithium polymer battery
                  cells weigh less and are easier to shape.  By  entering  these
                  markets,  we believe we can achieve  future revenue growth and
                  improved profit margins. In September 2005 we began production
                  of lithium polymer batteries.

Principal Products and Services

Lithium Batteries

         A battery is an  electrochemical  apparatus  used to store and  release
energy in the form of electricity. The main components of a conventional battery
are the anode,  cathode,  separator  and an  electrolyte,  which can be either a
liquid or a solid.  The separator  acts as an electrical  insulator,  preventing
electrical  contact  between the anode and cathode  inside the  battery.  During
discharge  of the  battery,  the anode  supplies a flow of  electrons,  known as
current,  to a load or device  outside of the battery.  After powering the load,
the electron  flow reenters the battery at the cathode.  As electrons  flow from
the anode to the device being powered by the battery, ions are released from the
cathode, cross through the electrolyte and react at the anode.



                                       2
<PAGE>

         All of the cells that we build are rechargeable  through the systems in
the devices in which our batteries are used.  Several  important  parameters for
describing the performance  characteristics of a rechargeable battery are design
flexibility, energy density, discharge rate, internal resistance and cycle life.
Design  flexibility  refers  to the  ability  of  rechargeable  batteries  to be
designed  to fit a variety  of shapes and sizes of  battery  compartments.  Thin
profile batteries with prismatic  geometry provide the design flexibility to fit
the battery compartments of today's electronic devices. Energy density refers to
the total  electrical  energy per unit volume  stored in a battery.  High energy
density  batteries  generally are longer lasting power sources  providing longer
operating time and necessitating fewer battery recharges.  Lithium batteries, by
the nature of their electrochemical  properties, are capable of providing higher
energy density than comparably  sized  batteries that utilize other  chemistries
such as Nickel Cadmium (NiCd) and Nickel Metal Hydride  (Ni-MH) and,  therefore,
tend to consume  less volume and weight for a given energy  content.  Long cycle
life is a preferred feature of a rechargeable battery because it allows the user
to  charge  and  recharge  many  times  before  noticing  a  difference  in  the
performance of the battery. A lithium ion battery with lower internal resistance
will provide higher electrical current with less energy consumption,  as well as
lower  internal heat energy as a result of the lower  internal  resistance.  The
lower  internal  heat also makes the battery safer because it is less subject to
explosion.  A higher discharge rate means a higher electrical current,  which in
cellular telephones means a longer talking time.

         In  addition  to the higher  energy  density of lithium  ion  batteries
compared  to other  rechargeable  chemistry  batteries  such as NiCd and  Ni-MH,
lithium ion batters  also provide  higher  discharge  rate and shorter  recharge
time. Lithium batteries also can be manufactured using lithium sulfur dioxide or
lithium  thionyl  chloride  although  those other  chemistries  have not been as
widely   used.    Generally,    chargeable   batteries   have   been   replacing
non-rechargeable  batteries  in many of the  uses of  which  our  batteries  are
intended.

         We  manufacture  a variety of lithium ion  rechargeable  batteries.  We
believe  our range of  lithium  ion  rechargeable  batteries  offer  substantial
benefits  including  the  ability to design and produce  lightweight  cells in a
variety of custom sizes, shapes and thickness. We produce the following types of
rechargeable lithium batteries.

         o        Prismatic  lithium ion batteries.  These batteries are used in
                  cellular  telephones,  MP3 players,  digital cameras and other
                  portable electronic  devices.  These batteries can be composed
                  of steel case cells or  aluminum  case  cells.  Aluminum  case
                  cells are  lighter  than steel case cells and safer.  However,
                  aluminum   case  cells   generally   are  more   expensive  to
                  manufacture and therefore have a higher cost. We manufacture a
                  wide variety of steel case cell and aluminum case cell lithium
                  ion   prismatic   batteries  in  various   sizes  and  voltage
                  configurations to satisfy customer requirements.

         o        Cylindrical lithium ion battery. These batteries are primarily
                  used in laptop computers, digital cameras and electric razors.
                  These   batteries  are  flexible  in  design  like   prismatic
                  batteries,  but have a  greater  energy  density.  Cylindrical
                  batteries  offer better  uniformity,  which permits them to be
                  used in  parallel  circuits  which  increases  the  electrical
                  current and the resulting working time.  However,  cylindrical
                  batteries are more expensive to manufacture and therefore have
                  a  higher   sales   price  than   comparable   non-cylindrical
                  batteries.  We  manufacture 3 types of models  ranging in size
                  and voltage requirements to satisfy customer requirements.

         o        Lithium  polymer  batteries.   These  batteries  are  used  in
                  cellular  telephones,  Bluetooth  headsets,  laptop computers,
                  integrated   circuit  cards  and  personal  digital  assistant
                  devices.  Lithium polymer batteries have a polymer electrolyte
                  rather than a liquid electrolyte,  which reduces the battery's
                  overall  weight and  volume.  This  allows for  lighter,  more
                  compact battery and more  flexibility in design than prismatic
                  or cylindrical lithium ion batteries.  However,  they are more
                  expensive  to   manufacture.   In  September  2005,  we  began
                  production of lithium polymer  batteries in a variety of sizes
                  and voltage configurations.  We are continuing to increase our
                  offerings  of lithium  polymer  batteries in order to gain the
                  markets acceptance of these products from BAK Battery.

         During fiscal 2005, our product mix was 55.89% steel case battery cell,
23.27% aluminum case battery cell,  1.03%  cylindrical  case battery cell, 0.02%
polymer battery cell and 19.79% industrial batteries.



                                       3
<PAGE>

Services

         We have  built a sales  and  service  network  covering  the  cities of
Shanghai,  Qingdao, Xiamen,  Quanzhou,  Zhuhai, Fuzhou, Guangzhou and Beijing in
the PRC. We provided  services to support  sales to our  customers who currently
are primarily  battery pack  manufacturers.  Our service  motto is  "cooperative
spirit, rapid reaction" . We provide presale,  sales and post sale services. Our
presale  service is designed to determine  our  customers'  order  requirements,
including,  size,  quantity,  voltage  and  delivery  date,  and  plan  for  the
production  of  batteries  to meet these  order  requirements.  We solicit  this
information through  face-to-face  meetings and through a written client survey.
The  information  we collect is used to schedule  raw  materials  purchases  and
production.  Our sales service includes the actual order processing,  materials,
purchases,  production  scheduling  and shipment of product.  Depending upon our
customers'  location,   we  may  ship  directly  using  our  own  transportation
facilities,  primarily  delivery  by truck,  or we may ship using a third  party
carrier.  We support our sales with  post-sales  customer  support.  Our service
capabilities  include a 24-hour  customer  response.  Our other services include
providing  battery  testing  and  test  reporting;  providing  training  courses
regarding quality control and battery usage;  gathering customer opinions on our
products  and  services;   evaluating   customer   requirements  and  fulfilling
appropriate requests.

         We have two strategic policies for sales and service:

         o        We  built  a sales  and  service  network  to  cover  Beijing,
                  Shanghai,   Qingdao,  Xiamen,  Quanzhou,  Zhuhai,  Fuzhou  and
                  Guangzhou in China.

         o        Our service capabilities include 24-hour customer response.

Features

         Performance  standards.  Our lithium ion batteries  have high capacity,
low internal  resistance,  and a safety guarantee.  Certificates or approvals we
have  received   include:   EU's  CE   attestation;   Underwriters'   Laboratory
authentication  in the United States;  and certificates  from the major cellular
telephone   manufacturers   of  China,   including   China  Saibao  (the  CEPREI
certification   body);   Amoi   Electronics  Co.,  Ltd.;  China  Datang  (Group)
Corporation;  Konka Group Co., Ltd.; Tianyu  Communication  Technology (Kunshan)
Co., Ltd.; and Shenzhen Telsda Mobile  Communication  Industry  Development Co.,
Ltd.

         Longer usage time and higher  discharge  rates.  We believe our battery
has a higher  discharge  voltage  so it can  provide a longer  talking  time for
mobile  phone users.  Our products  have a higher  discharge  capacity  than the
battery products of certain competitors.  Therefore, with the same capacity, our
battery  can  therefore  provide a longer  talking  time.  The higher  discharge
capacity is especially useful for cellular telephones with color screens,  which
have a high demand on the battery's continuous discharge voltage.

         Performance at lower  temperatures.  Our lithium ion batteries  perform
well from -20 Celsius to +60 Celsius.  At a  temperature  as low as -20 Celsius,
the batteries release 95% of the battery energy at an 0.2C rate (i.e.  discharge
all the energy in 5 hours); and over 90% of the battery energy can be discharged
at an 1.0C rate.  This feature  allows  improved  cell phone  battery  duration,
particularly in northern areas of the PRC.

Manufacturing

         We manufacture all of our products from raw materials at our facilities
in Shenzhen in the PRC. The battery  cells we produce are  typically  shipped to
third parties for final packaging  prior to delivery to our customers.  The cost
of such  packaging  is not  included  in our sales  price to our  customers.  We
maintain  separate  production lines for steel case cells,  aluminum case cells,
cylindrical  cells and lithium polymer  batteries.  Such production lines can be
adapted to produce other types of batteries if the demand for a particular  type
of battery  increases or decreases.  Our current  monthly output  capacity is 22
million units.

         Certain  of the  materials  we  utilize  may pose  safety  problems  if
improperly  used. We have designed our batteries to minimize safety hazards both
in manufacturing and in use.



                                       4
<PAGE>

         Depending  upon the  customer's  location,  we  generally  deliver  our
product to our  customers by truck or by shipment from the Port of Hong Kong. We
deliver our product to packing plants  operated by third parties where cells are
packed in accordance with our customer's specifications

         We primarily  utilize  electrical supply from the local utility company
for  heat,  light  and  power  to our  facilities.  As  part  of our  production
efficiency,  we may enter into a supply agreement with an electrical supplier in
order to assure the supply of electrical power to our manufacturing facilities.

         We have received  International  Organization for Standardization 9001:
2000, a quality management system certification,  and International Organization
for   Standardization   14001:   1996,  an   environmental   management   system
certification for all our manufacturing facilities.

Sales and Marketing

         Marketing Strategies.  We have two key marketing strategies.  Our first
strategy  is to be a leader in the  worldwide  replacement  battery  market.  We
believe we can secure and enhance our market share because of the quality of our
products and our ability to maintain high production  volume with low production
cost. Our second marketing  strategy is to enter the global OEM market. To enter
into this market we will be required  to gain  certification  from a global OEM,
which we are currently  seeking and anticipate that we will receive.  We believe
that our entry into the OEM market is important to our continued  growth because
the market for replacement batteries is becoming saturated.

         Our Current  Market.  We have developed a sales and service  network of
our own  employees  based in the cities of Qingdao,  Xiamen,  Quanzhou,  Zhuhai,
Fuzhou, Shanghai,  Guangzhou and Beijing in the PRC. We also export our products
to the United States, Canada, South Africa, Japan,  Singapore,  Taiwan, and Hong
Kong.  From 2001,  our annual sales have grown from $3 million to $101.9 million
for the year ended September 30, 2005. For the year ended September 30, 2005 71%
of our sales were domestic, while 29% were made internationally.

Competition

         Our   rechargeable   lithium  ion  batteries   compete   against  other
manufacturers of lithium ion batteries. We compete on the basis of the prices at
which we sell our  products,  our ability to supply the  quantities of batteries
our customers need in accordance  with our customers'  schedules and the quality
of our products.  We face competition in the production of rechargeable  lithium
ion  batteries,  not only within China,  but also from other parts of the world,
particularly  Japan and Korea.  Sony  Corp.  first  commercialized  rechargeable
lithium ion  batteries  in 1992.  However,  Japan's  market share of lithium ion
battery  production has decreased since 2000. We believe we are currently one of
the  largest  lithium  ion battery  manufacturers  in the world,  with a monthly
output of 22 million  units (our  monthly  production  has  reached  the monthly
output capacity).  We also believe we are the second largest manufacturer in the
Chinese market.

         We believe  the  following  are the  leading  global  manufacturers  of
lithium batteries::

         o        Japan - Sanyo  Electric Co., Sony Corp.,  Matsushita  Electric
                  Industrial Co., Ltd.  (Panasonic),  GS Group,  NEC Corporation
                  and Hitachi Ltd.;

         o        Korea - LG Chemical Ltd. and Samsung  Electronics  Co.,  Ltd.;
                  and

         o        China - BYD Co. Ltd.,  Shenzhen BAK Battery Co., Ltd., Tianjin
                  Lishen Battery  Joint-Stock  Co., Ltd., Henan Huanyu Group and
                  Harbin Coslight Technology International Group Co., Ltd.

         We compete with these companies by striving to provide a higher quality
product at a lower cost.  We believe that by doing  business in China,  we enjoy
competitive advantages over similar companies doing business in Japan and Korea,
including abundant labor resources,  low cost raw materials and better access to
China's  extensive  mobile phone  market.  We also  believe that our  production
efficiencies  as well as our labor costs,  give us a competitive  advantage over
other manufacturers in China. Historically,  although other entities may attempt



                                       5
<PAGE>

to take  advantage  of the growth of the  lithium  battery  market,  the lithium
battery industry has certain  technological  and economic barriers to entry. The
development  of  technology,  equipment and  manufacturing  techniques,  and the
operation  of a facility  for the  automated  production  of  lithium  batteries
require large capital expenditures, which may deter new entrants from commencing
production.

Suppliers

         We have  built a complete  supply  chain,  putting  together a group of
material  and  equipment  suppliers,  primarily  Chinese,  except  for  ENTEK (a
separator  supplier  in the US),  from whom we buy on a  purchase  order  basis.
During the sales  process,  our  purchasing  department  prepares a schedule  of
materials  needs for the planned  production.  The  purchasing  department  then
solicits from the suppliers with whom we have established  relationships and may
have entered into a long-term supply  contract.  We then enter an order with the
selected  supplier(s).  The order will specify price,  settlement date, quantity
and the other requirements.  We also specify quality standards for the purchase.
We have established standards for our suppliers relating to quality, service and
various other aspects of supply.  We may enter into volume  purchase  agreements
with our major  suppliers  under which we purchase  materials and equipment on a
purchase order basis.  We have entered into such an agreement with Beijing CITIC
Guoan  Mengguli  Electric  Supply Ltd.  Co.,  from whom we purchase  the cathode
material,  Lithium Cobalt Dioxide  (LiCoO2).  These volume  purchase  agreements
generally only specify  nonmaterial  terms;  the material terms of each purchase
are  separately  determined  at the time of  purchase  order.  We  believe  that
alternative  suppliers  are  available  to supply  materials  and  equipment  if
purchases were not available  under any volume  purchase  agreement we may enter
into.

         Cathode material in a lithium ion battery is primarily  LiCoO2;  LiMnO4
and  LiCo1-xNixO2  are also used as cathode  materials.  Anode  material  mainly
consists of carbon materials such as graphite,  sourced  primarily in China. The
separator  material  is  imported  from Japan and the US.  There are  sufficient
supplies of electrolytes  in China,  and we believe the quality to be very good.
The table below describes the key sources of our key materials.

         As of September 30, 2005, our key material suppliers and key equipment
suppliers were as follows:


                             Key Material Suppliers
------ ------------------ ------------------------------------------------------
 Item     Materials                       Main Suppliers
------ ------------------ ------------------------------------------------------
  1    Case and caps      Roofer Group Company, Yijinli technology company
                          Shenzhen Tongli Precision Stamping Products Co., Ltd.
------ ------------------ ------------------------------------------------------
  2    Cathode materials  CITIC Guoan
------ ------------------ ------------------------------------------------------
  3    Anode materials    Shanghai Shan Shan, Changsha graphite
------ ------------------ ------------------------------------------------------
  4    Aluminum foil      Aluminum Corporation of America, Shanghai
------ ------------------ ------------------------------------------------------
  5    Copper foil        Huizhou United Copper Foil
------ ------------------ ------------------------------------------------------
  6    Electrolyte        Zhangjiagang Guotai-Huarong New Chemical Materials
                          Co., Ltd.
------ ------------------ ------------------------------------------------------
  7    Separator          Ube Industries, ENTEK, CELGARD
------ ------------------ ------------------------------------------------------


                             Key Equipment Suppliers
------ -------------------------------- ----------------------------------------
 Item      Instruments                              Suppliers
------ -------------------------------- ----------------------------------------
  1    Coating machine                  Beijing 706 Factory
------ -------------------------------- ----------------------------------------
  2    Mixer                            Guangzhou Hongyun Machine
------ -------------------------------- ----------------------------------------
  3    Press machine                    SevenStar Huachuang
------ -------------------------------- ----------------------------------------
  4    Ultrasonic spot welding machine  Zhenjiang Tianhua Machinery and
                                        Electrical Co., Ltd.
------ -------------------------------- ----------------------------------------
  5    Laser seam welder                Wuhan Chutian Laser Group
------ -------------------------------- ----------------------------------------
  6    Vacuum oven                      Jiangshu Wujiang Songling
------ -------------------------------- ----------------------------------------
  7    Electrolyte filling machine      BAK (internally developed)
------ -------------------------------- ----------------------------------------
  8    Aging equipment                  Guangzhou Qingtian Industrial Co., Ltd.
------ -------------------------------- ----------------------------------------
  9    Testing and sorting equipment    Guangzhou Qingtian Industrial Co., Ltd.;
                                        Wuhan Kingnuo Electronics Co., Ltd.
------ -------------------------------- ----------------------------------------



                                       6
<PAGE>

Customers

         We have  targeted  sales of our lithium ion  rechargeable  batteries to
OEM's and replacement  battery pack  manufacturers,  who resell our batteries in
packaging to end users.  Due to the demand for replacement  cell phone batteries
in China,  and our  proximity  to that market,  we targeted our domestic  market
through replacement  battery pack  manufacturers.  Over the past three years, we
have developed  relationships  with key battery pack  customers,  including SCUD
(Fujian)  Electronics  Co.,  Ltd.,  Desay Power Tech.  Co., Ltd. and Shenzhen Ya
Litong Electronic Co., Ltd. We are also targeting sales of lithium ion batteries
to  multinational  OEM's.  A key to the OEM market is obtaining  approval of our
products from the OEM's, which we are currently seeking from a global OEM in the
mobile phone industy. Our sales are generated primarily from purchase orders. We
generally do not have long-term contracts with customers,  although we may enter
into a letter of intent to express our long term cooperative  relationship  with
the  customer.  Our ten  largest  customers,  who  predominantly  are in  China,
accounted for 53.31% of our sales during the year ended  September 30, 2005. Our
30 largest  customers  accounted  for 78.45% of our sales  during the year ended
September  30,  2005,  predominantly  in China.  We do not believe our sales are
materially seasonal.

Intellectual Property and Proprietary Rights

         We rely primarily on a combination  of copyright  laws and  contractual
restrictions to establish and protect our intellectual  property  rights.  As of
September 30, 2005, we had obtained 15 issued  patents in the PRC and 121 are in
the application  process.  We require our management and key technical personnel
to enter into  agreements  requiring them to keep  confidential  all information
relating to our customers,  methods, business and trade secrets during and after
their employment with us.

         We have very strict control over the core technologies for which we can
not apply for  patents.  Every  employee  who is  related  to these  proprietary
technologies must sign a "special technology non-disclosure  agreement". We have
also  established an internal  department to protect  property  rights.  In this
department, there are professionals including attorneys, engineers,  information
managers and archives managers responsible for the application and protection of
proprietary rights. We have also developed a series of rules regarding "property
right  non-disclosure",   "property  right  archives  management",  "information
collection and analysis" and "innovation encouragement".  While we actively take
steps to protect  our  proprietary  rights,  such steps may not be  adequate  to
prevent the infringement or misappropriation of our intellectual property.  This
is particularly the case in China where the laws may not protect our proprietary
rights as fully as in the United States. Infringement or misappropriation of our
intellectual  property  could  materially  harm our  business.  BAK  Battery has
registered  the  following  Internet  and WAP domain  name  www.bak.com.cn  (the
English version of our website can be found at www.bak.com.cn/en).

Research and Development

         We  operate  a  state  of  the  art  research  and  development  center
performing  proprietary  research that has resulted in 15 issued  patents in the
PRC and 121  applications for patents filed in the PRC as of September 30, 2005.
We have not had any  patents  awarded in any other  country.  We also  outsource
certain of our research and development  matters to ChangChun  Applied Chemistry
Research  Institute of the China  Scientific  Institute,  Tstinghua  University,
JiLin  University,  the  Electrochemistry  Department of XiaMen  University  and
Shenzhen University. In our in-house facility, we employ over 100 staff members,
led by  three  government  recognized  specialists.  Upon  the  approval  of the
National  Ministry of Personnel in October 2002, a Postdoctoral  Workstation was
established.  The establishment of the Workstation  serves as recognition by the
PRC  government of the strong  capabilities  of our in-house  research team. The
research and development  center focuses research on projects relating to liquid
lithium ion batteries,  high power lithium ion batteries,  solid lithium polymer
ion batteries, and cylindrical and rectangular lithium ion batteries.

         During  fiscal  2005 and  2004,  we  expended  $541,735  and  $328,779,
respectively,  on our research and  development  efforts.  We have also invested
$930,000 on research and development  equipment during fiscal 2005, bringing the
total research and development  expenditures during fiscal 2005 to $1.5 million.
During  2004,  our research was aimed at  developing  new or improved  anode raw
material  and new  products.  Our  research in 2005 has been  targeted at new or
improved cathode raw material and product safety research.



                                       7
<PAGE>

Employees

         The following  table  summarizes  the  functional  distribution  of our
employees as of September 30, 2004 and September 30, 2005:

                Department               September 30, 2004   September 30, 2005

Officers                                         10                   11
Comprehensive Management                        197                   146
Human Resources                                  19                   18
Sales and Marketing                              67                   88
PMS Department                                   21                   13
Process Department                               46                   29
Research & Development                          107                   108
Purchasing Department                            29                   24
Financial Department                             18                   25
PMC Department                                   45                   74
After Sales Department                           33                   35
Quality Control Department                      242                   125
Investment Banking Department                    1                     5
Information Technology Department                0                    10
Intellectual Property Department                 0                    12
Mechanical and Electronic Engineering            99                   165
Manufacturing Department                       5,428                 6,082
--------------------------------------- -------------------- -------------------
TOTALS                                         6,362                 6,970


         None of our  personnel  are  represented  under  collective  bargaining
agreements. We consider our relations with our employees to be good.

Reports to Shareholders

         The public may read and copy any  materials we file with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W.,  Washington,  D.C. 20549.
The public may obtain  information on the operation of the Public Reference Room
by calling the SEC at  1-800-SEC-0330.  The SEC also  maintains an Internet site
(http://www.sec.gov)  that contains reports,  proxy and information  statements,
and other information regarding issuers that file electronically with the SEC.

                                  RISK FACTORS

         An investment  in our  securities  involves a high degree of risk.  You
should  carefully  consider the following  risks and the other  information  set
forth  elsewhere in this annual  report on Form 10-KSB,  including our financial
statements and related notes, before you decide to purchase shares of our common
stock.

Risks Related to Our Business

We have significant  short-term debt  obligations  which mature in less than one
year.  Failure to extend those  maturities of, or to refinance,  that debt could
result in defaults, in certain instances, and foreclosures on our assets.

         As of September 30, 2005, we had $69.12 million of short-term loans and
notes payable maturing in less than one year, a substantial  portion of which is
secured  by the  pledge of  certain  of our  assets.  That  collateral  includes
inventory,  machinery and equipment  and, cash and cash  equivalents  which,  at
September 30, 2005, were in the aggregate  amount of $36.87 million.  Failure to
obtain  extensions of the maturity dates of, or to refinance,  these obligations
or to obtain  additional  equity financing to meet these debt obligations  would
result in an event of default with respect to such  obligations and could result
in the foreclosure on the collateral. The sale of such collateral at foreclosure
would result in a substantial  disruption in our ability to produce products for
our customers in the quantities  required by customer orders or deliver products
in  a  timely  fashion,   which  could  significantly  lower  our  revenues  and



                                       8
<PAGE>

profitability.  We  may  be  able  to  refinance  or  obtain  extensions  of the
maturities of all or some of such debt only on terms that  significant  restrict
our ability to operate, including terms that place limitations on our ability to
incur other indebtedness,  to pay dividends, to use our assets as collateral for
other  financings,  to sell assets or to make  acquisitions  or enter into other
transactions.  Such restrictions may adversely affect our ability to finance our
future operations or to engage in other business  activities.  If we finance the
repayment  of our  outstanding  indebtedness  by  issuing  additional  equity or
convertible debt securities, such issuances could result in substantial dilution
to our stockholders.

Our  indebtedness  adversely  affects our ability to fund our  operations and to
compete effectively.

         The amount of our indebtedness to lenders,  which was $69.12 million as
of September  30, 2005,  is  substantial  compared to our assets,  stockholders'
equity and our operating cash flow. That indebtedness limits our ability to fund
our operations through our operating cash flow and to compete effectively. Among
other things, our indebtedness:

         o        requires us to dedicate a substantial portion of our cash flow
                  from operations to debt service payments, reducing our working
                  capital and  adversely  affecting  our ability to fund capital
                  expenditures through operating cash flow;

         o        places us at a  disadvantage  compared with  competitors  that
                  have proportionately less debt; and

         o        limits our ability to borrow  additional  funds in the future,
                  if we need them, due to financial and restrictive covenants in
                  our debt agreements.

Our manufacturing facilities are not insured against damage or loss.

         Our  operations  and financial  condition  are solely  dependent on the
success  of BAK  Battery's  operations  in  China.  As is  the  case  with  many
manufacturing companies in the PRC, we conduct those operations in manufacturing
facilities,  and using  machinery  and other  related  property,  that we do not
insure against damage or loss. We do not carry business interruption  insurance.
If we suffer any business  interruption  or material  damage to, or the loss of,
any of our  manufacturing  facilities,  due to any cause,  the loss would not be
offset by any insurance proceeds,  and if large enough, that loss could threaten
the continued viability of our business.

We are and will continue to be under downward pricing  pressures on our products
from our customers and competitors.

         We face downward pricing  pressures from our customers and competitors,
especially  in the  sales of  replacement  batteries.  To  retain  our  existing
customers  and gain new ones,  we must  continue to keep our unit prices low. In
view of our need to maintain  low prices on our  products,  our  growth,  profit
margins and net income will suffer if we cannot effectively  continue to control
our manufacturing and other costs.

Our contracts with our customers are generally short-term and do not require the
purchase of a minimum amount.

         Our customers  generally do not provide us with firm,  long-term volume
purchase  commitments.  Although we enter into manufacturing  contracts with our
customers who have  continuing  demand for a certain  product,  these  contracts
state  terms  such as payment  method,  payment  period,  quality  standard  and
inspection and similar matters rather than provide firm,  long-term  commitments
to  purchase  products  from us.  As a result  of the  absence  of the long term
contracts,  we could have periods during which we have no or only limited orders
for our  products,  but will  continue to have to pay the costs to maintain  our
work force and our  manufacturing  facilities  and to service  our  indebtedness
without the benefit of current revenues.



                                       9
<PAGE>

We  consistently  face short lead times for  delivery of products to  customers.
Failure to meet delivery deadlines in our production  agreements could result in
the loss of customers and damage to our reputation and goodwill.

         We  enter  into  production  agreements  with  our  customers  prior to
commencing production,  which reduces our risk of cancellations.  However, these
production  agreements  typically  contain  short  lead  times for  delivery  of
products,  leading to  production  schedules  that can strain our  resources and
reduce our profit margins on the products  produced.  Although we have increased
our manufacturing capacity, we may lack sufficient capacity at any given time to
meet all of our  customers'  demands if they exceed the  production  capacity of
levels.  We strive for rapid  response  to  customer  demand,  which can lead to
reduced purchasing  efficiency and increased material costs. If we are unable to
sufficiently meet our customers' demands,  we may lose our customers.  Moreover,
failure to meet customer demands may damage our reputation and goodwill.

Because of the short lead times in our production agreements, we may not be able
to accurately or effectively plan our production or supply needs.

         We make  significant  decisions,  including  determining  the levels of
business  that  we  will  seek  and  accept,  production  schedules,   component
procurement  commitments,  facility  requirements,  personnel  needs,  and other
resource  requirements,  based on our production  agreements with our customers.
Short lead times of our  customers'  commitments  to their own customers and the
possibility of rapid changes in demand for their products  reduce our ability to
estimate accurately the future requirements of those customers for our products.
Because  many of our costs and  operating  expenses  are fixed,  a reduction  in
customer  demand can harm our gross margins and operating  results.  We may also
occasionally  acquire raw materials  without having  customer  orders based on a
customer's  forecast or in anticipation of an order and to secure more favorable
pricing,  delivery or credit terms in view of the short lead times we often have
under our  customers'  orders.  These  purchases  can  expose us to losses  from
inventory carrying costs or inventory obsolescence.

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

         We do not own the tract of property on which we are  constructing a new
manufacturing  plant and related  facilities,  which facilities are important to
our future operations.  See "Business-Facilities." We have applied for, but have
not  obtained,  a  certificate  of land use right for the property and those new
facilities.  We are  negotiating  with  the  PRC  government  to  obtain  such a
certificate  and  believe  that  we  will  obtain  the  certificate.  If we  are
unsuccessful  in doing so, we could be forced to vacate  our  current  premises,
would not be permitted to use the new  manufacturing and other facilities we are
constructing and could be required to relocate to new facilities.  Such an event
would  cause a  severe  disruption  in our  ability  to  produce  our  products,
resulting in the failure to fill customer orders,  the loss of customer revenues
and a resulting loss of revenues.

We face intense competition from other battery manufacturers,  many of whom have
significantly greater resources than do we.

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

         Several of these existing competitors have greater financial, personnel
and capacity resources than we do and, as a result,  these competitors may be in
a stronger position to respond quickly to market opportunities,  new or emerging
technologies and changes in customer  requirements.  Many of our competitors are
developing a variety of battery  technologies,  such as lithium polymer and fuel
cell batteries,  which are expected to compete with our existing  product lines.
Other companies undertaking research and development activities of solid-polymer
lithium ion batteries have developed prototypes and are constructing  commercial
scale production facilities. The introduction of new products that are perceived
as having  more  desirable  qualities  than our  products  and that gain  market



                                       10
<PAGE>

acceptance  would  lead to  price  erosion  for our  products,  require  greater
marketing  and  advertising  of our  products or require  greater  research  and
development  costs  to  develop  competing  products.   If  competitors  develop
manufacturing  processes that are more efficient than ours, we may face downward
pressure  on  pricing  with  resulting  reductions  in our gross  profit for our
products.  Any such  developments  may require us to increase  our  research and
development  and related  expenditures to develop  competing  technology or more
efficient manufacturing processes.

We are dependent on a single line of products.

         Our  revenues  are  derived  solely  from the sale of our  lithium  ion
batteries. The market for these products is characterized by changing technology
and evolving  industry  standards,  often  resulting in product  obsolescence or
short  product  lifecycles.  Although  we  believe  our  products  are  based on
state-of-the-art  technology,  other  technologies  may become the  standard for
manufacturers  of cellular  telephones and other devices that use our batteries.
In that instance,  our products  could be obsolete,  requiring us to develop new
products that compete  effectively  with the other  products on the market.  Our
failure to identify and develop a  commercially  viable  number of product lines
that are sought by the market could  adversely  affect our growth  opportunities
and,  ultimately,  our  viability.  Because  we do not  have a  diverse  product
offering  that would enable us to sustain our business  while seeking to develop
new types of products,  our business may not be able to recover if we experience
a steep decline in demand for our current product offerings.

Our  operations  depend  highly on Mr.  Xianqian  Li,  our  President  and Chief
Executive Officer and a small number of other executives.

         The  success of  operations  depends  greatly on a small  number of key
managers,  including Mr. Li, the President, Chief Executive Officer and Chairman
of the Board of  Directors  of CBBI and the  chief  executive  officer  and sole
director of BAK International  and BAK Battery.  The loss of the services of Mr.
Li or any of the other senior  executives of CBBI or BAK Battery could adversely
affect our ability to conduct our business. Although we believe we would be able
to find other  managers  to replace any of these  managers,  the search for such
managers and the  integration of such managers into our business will inevitably
occur only over an extended period of time.  During that time the lack of senior
leadership  could affect adversely our sales and  manufacturing,  as well as our
research and development efforts. Mr. Li has held his positions with BAK Battery
since the inception of its business, and our future growth and success very much
depends  on his  continued  involvement  with  our  company.  All of our  senior
managers  have an  employment  agreement  with CBBI,  BAK  International  or BAK
Battery.

Our  operations  depend on our  ability to attract  and retain a highly  skilled
group of managers and other personnel.

         Because of the highly specialized, technical nature of our business, we
must  attract  and  retain a highly  skilled  group of  managers  and a sizeable
workforce of  technically  competent  employees.  Although we do not  experience
unacceptable  attrition among our technical staff and sales force, if we were to
lose a substantial  portion of such persons,  our ability to effectively  pursue
our business strategy could be materially and negatively  affected.  Although we
believe  the pool of  managers  and  workers  having  the  necessary  education,
training  and  technical  skills to fill any  positions  that may become open is
sufficient  for our needs,  the labor  market for such  managers  and workers is
becoming more competitive and we could have to pay higher salaries and wages and
provide greater benefits in order for us to attract the necessary workers.

We may not be able to  effectively  respond  to rapid  growth in demand  for our
products and of our manufacturing operations.

         If we are successful in obtaining rapid market growth of our batteries,
we will be required to deliver large volumes of quality products to customers on
a timely basis at a reasonable cost to those  customers.  Meeting such increased
demands will require us to expand our manufacturing  facilities, to increase our
ability to purchases of raw  materials,  to increase the size of our work force,
to expand our quality control  capabilities and to increase the scale upon which
we produce products. Such demands would require more capital and working capital
than we currently have available.



                                       11
<PAGE>

We extend relatively long payment terms for accounts receivable.

         As is customary in the PRC, we extend relatively long payment terms and
provide  liberal return  policies to our  customers.  As a result of the size of
many of our orders,  these extended terms adversely affect our cash flow and our
ability to fund our  operations  out of our  operating  cash flow.  In addition,
although we attempt to establish appropriate reserves for our receivables, those
reserves may not prove to be adequate in view of actual levels of bad debts. The
failure of our  customers to pay us timely would  negatively  affect our working
capital, which could in turn adversely affect our cash flow.

         Our  customers  often place large orders for products,  requiring  fast
delivery, which impacts our working capital. If our customers do not incorporate
our products into their products and sell them in a timely fashion, for example,
due to excess inventories,  sales slowdowns or other issues, they may not pay us
in a timely fashion,  even on our extended terms. This failure to pay timely may
defer or delay further  product  orders from us, which may adversely  affect our
cash flows, sales or income in subsequent periods.

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

         Our future operating results will depend to a significant extent on our
ability to continue to provide new products that compare  favorably on the basis
of cost and performance with the products of our competitors,  many of whom have
design and  manufacturing  capabilities and technologies  that compete well with
our products.  We are currently  conducting research and development on a number
of new products, activities requiring a substantial outlay of capital. To remain
competitive, we must continue to incur significant costs in product development,
equipment,  facilities  and invest in research and  development of new products.
These  costs may  increase,  resulting  in  greater  fixed  costs and  operating
expenses.  All of these  factors  create  pressures  on our working  capital and
ability  to  fund  our  current  and  future  manufacturing  activities  and the
expansion of our business.

Lithium ion batteries  pose certain safety risks that could affect our financial
condition and results of operations.

         Due to the high  energy  density  inherent  in lithium  batteries,  our
batteries can pose certain  safety risks,  including the risk of fire.  Although
through our research, design, development and manufacturing processes we attempt
to minimize  safety risks related to our  batteries,  should an accident  occur,
whether at the  manufacturing  facilities  or from the use of the  products,  it
could result in significant  production  delays or product  liability claims for
damages  resulting from  injuries.  As a result of limits imposed in our product
liability  insurance  policy,  such losses might not be covered by our insurance
policy,  and if large enough,  could have a material and negative  effect on our
financial condition and results of operations.

We depend on  certain  suppliers  of raw  materials  for the  production  of our
products,  and any disruption with those suppliers could delay product shipments
and adversely affect our relationships with customers.

         Certain  materials  used in products  are  available  to us only from a
limited number of suppliers.  We currently  maintain volume purchase  agreements
with our major suppliers.  However, any interruption in deliveries from any such
supplier   could  delay  our  product   shipments  and   adversely   affect  our
relationships with customers.  We believe,  however,  that alternative suppliers
could supply raw materials  that could replace the materials  currently used and
that,  if  necessary,  we would be able to redesign  our products to make use of
such alternatives.

We  receive  a  significant  portion  of our  revenues  from a small  number  of
customers.

         Although no customer  individually  accounted  for more than 10% of our
revenues  for the  fiscal  year  ended  September  30,  2005,  our five  largest
customers  accounted  for 34.51% and 38.98% of our  revenues  in fiscal 2005 and
2004,  respectively.  Dependence on a few  customers  could make it difficult to
negotiate  attractive prices for our products and could expose us to the risk of
substantial losses if a single dominant customer stops purchasing our products.



                                       12
<PAGE>

Our  business  depends  on our  ability  to protect  our  intellectual  property
effectively.

         The success of our business depends in substantial measure on the legal
protection of the patents and other proprietary rights in technology we hold. We
hold  patents in China and have patent  applications  pending in China and other
countries regarding  technologies  important to our business. If (i) our pending
patent  applications  do not result in the issuance of patents,  (ii) the claims
allowed  under any existing  patents are not  sufficiently  broad to protect our
technology,  or (iii) any patents  issued to us are  challenged,  invalidated or
circumvented, then the resulting ability of third parties to utilize the subject
technology will adversely affect on our business. We do not hold similar patents
in other countries with respect to these technologies. Consequently, our ability
to protect against the unauthorized use of those  technologies  outside of China
is limited.

         We  claim  proprietary  rights  in  various  unpatented   technologies,
know-how,  trade secrets and trademarks  relating to products and  manufacturing
processes.  We protect our  proprietary  rights in our products  and  operations
through contractual obligations,  including nondisclosure  agreements.  If these
contractual measures fail to protect our proprietary rights, any advantage those
proprietary rights provided to us would be negated.

         Monitoring  infringement of intellectual  property rights is difficult,
and we cannot be certain that the steps we have taken will prevent  unauthorized
use of our intellectual property and know-how, particularly in the PRC and other
countries in which the laws may not protect our  proprietary  rights as fully as
the  laws  of  the  United  States.   Accordingly,   other  parties,   including
competitors,  may duplicate  our products  using our  proprietary  technologies.
Pursuing  legal  remedies  against  persons  infringing our patents or otherwise
improperly  using our  proprietary  information  is a costly and time  consuming
process that would divert  management's  attention and other  resources from the
conduct of our other  business,  could cause delays and other  problems with the
marketing  and  sales of our  products,  as well as delays  in  deliveries.  Our
business  may be  adversely  affected  by  obsolete  inventories  as a result of
changes in demand for our products and change in life cycles of our products.

Risks Related to Doing Business in China

Our  operations  are located in China.  Changes in the  political  and  economic
policies of the Chinese government may adversely affect our operations.

         Our  business  operations  may be adversely  affected by the  political
environment in the PRC. The PRC has operated as a socialist state since 1949 and
is controlled by the Communist  Party of China.  In recent years,  however,  the
government has introduced reforms aimed at creating a "socialist market economy"
and  policies  have  been  implemented  to allow  business  enterprises  greater
autonomy in their operations. Changes in the political leadership of the PRC may
have a significant  effect on laws and policies  related to the current economic
reforms program,  other policies  affecting  business and the general political,
economic  and social  environment  in the PRC,  including  the  introduction  of
measures to control  inflation,  changes in the rate or method of taxation,  the
imposition of additional  restrictions  on currency  conversion and  remittances
abroad, and foreign investment. Moreover, economic reforms and growth in the PRC
have been more  successful in certain  provinces in the PRC than in others,  and
the continuation or increases of such disparities  could affect the political or
social stability of the PRC.

         Although  we believe  that the  economic  reform and the  macroeconomic
measures  adopted by the Chinese  government  have had a positive  effect on the
economic development of China, the future direction of these economic reforms is
uncertain and the uncertainty may decrease the  attractiveness of our company as
an investment,  which may in turn materially adversely affect the price at which
our stock trades.

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

         The PRC only  recently  has  permitted  provincial  and local  economic
autonomy  and  private  economic  activities.  The  government  of the  PRC  has
exercised and continues to exercise  substantial  control over  virtually  every
sector of the  Chinese  economy  through  regulation  and state  ownership.  Our
ability to operate in China may be adversely affected by changes in Chinese laws
and  regulations,  including  those  relating  to  taxation,  import  and export
tariffs, environmental regulations, land use rights, property and other matters.
We believe that our  operations in China are in compliance  with all  applicable



                                       13
<PAGE>

legal and regulatory requirements.  However, the central or local governments of
these  jurisdictions may impose new, stricter  regulations or interpretations of
existing  regulations that would require additional  expenditures and efforts on
our part to ensure our compliance with such regulations or interpretations.

         Accordingly,  government actions in the future,  including any decision
not to  continue  to support  recent  economic  reforms  and to return to a more
centrally planned economy or regional or local variations in the  implementation
of economic policies or to nationalized ownership of all companies now privately
owned,  could have a  significant  effect on economic  conditions  in the PRC or
particular  regions  thereof,  and could  require us to divest  ourselves of any
interest we then hold in Chinese properties or joint ventures.

We  currently  enjoy a  reduced  tax  rate,  and the  loss of this  benefit  may
adversely impact our net income.

         Under PRC laws and  regulations our PRC subsidiary BAK Battery enjoys a
reduced  enterprise income tax rate as a foreign invested  enterprise and a high
tech enterprise in an economic  development zone. As such, under the current tax
scheme,  we did not owe any tax during the first two years following the time at
which we became  profitable,  which tax-free  period ended on December 31, 2003.
After that time and through  the 2009  calendar  year,  we have been and will be
taxed on our  enterprise  income,  which is  equivalent to our net income before
provision  for  income  tax,  at the rate of 7.5%,  which is equal to 50% of the
current 15% enterprise income tax rate currently  applicable in Shenzhen.  If we
fail to qualify for a reduced tax program following the end of the 2009 calendar
year,  we would be  required  to pay tax at the  full  tax  rate  applicable  in
Shenzhen at that time.

         We currently  benefit from favorable  local tax treatment,  the loss of
which would adversely affect our results of operations.  The current  enterprise
income tax rate in Shenzhen is 15%, which is in addition to the taxes  described
above. The PRC could change the tax law to raise the enterprise  income tax rate
applicable  in Shenzhen to the  standard  statutory  tax rate in the PRC,  which
currently is 33%,  which change  would result in our  incurring a  substantially
increased tax liability and a consequent reduction in our net income.

Future inflation in China may inhibit economic activity in China.

         In recent years,  the Chinese economy has experienced  periods of rapid
expansion  and high rates of inflation.  During the past ten years,  the rate of
inflation in China has been as high as 20.7% and China has experienced deflation
as low as  minus  2.2%.  These  factors  have  led to the  adoption  by the  PRC
government,  from time to time,  of  various  corrective  measures  designed  to
restrict the  availability of credit or regulate  growth and contain  inflation.
While  inflation has been more moderate  since 1995,  high  inflation may in the
future cause the PRC government to impose  controls on credit and/or prices,  or
to take other  action,  which could  inhibit  economic  activity  in China,  and
thereby adversely affect the market for our products.

Any  recurrence  of severe  acute  respiratory  syndrome,  or SARS,  or  another
widespread  public  health  problem,  in the  PRC  could  adversely  affect  our
operations.

         A renewed outbreak of SARS or another  widespread public health problem
in China,  where all of our manufacturing  facilities are located and where over
77% of our sales occur and in Shenzhen,  where our operations are headquartered,
could have a negative effect on our  operations.  Such an outbreak could have an
impact on our operations as a result of:

         o        quarantines   or  closures   of  some  of  our   manufacturing
                  facilities   offices,   which  would   severely   disrupt  our
                  operations,

         o        the sickness or death of our key officers and employees, and

         o        a general slowdown in the Chinese economy.

         Any of the foregoing events or other unforeseen  consequences of public
health problems could adversely affect our operations.



                                       14
<PAGE>

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

         Because all of our revenues  are in the form of  Renminbi,  the Chinese
currency unit, any  restrictions on currency  exchanges may limit our ability to
use revenue generated in Renminbi to fund any future business activities outside
China. Although the Chinese government  introduced  regulations in 1996 to allow
greater  convertibility  of  the  Renminbi  for  current  account  transactions,
significant  restrictions still remain, including primarily the restriction that
foreign-invested  enterprises  may only buy, sell or remit  foreign  currencies,
after providing valid commercial documents, at those banks authorized to conduct
foreign  exchange  business.  In  addition,  conversion  of Renminbi for capital
account items,  including direct  investment and loans, is subject to government
approval in China,  and  companies  are required to open and  maintain  separate
foreign  exchange  accounts for capital account items. If the currency  exchange
system prevents us from obtaining sufficient foreign currency,  we may be unable
to fund business activities outside China or otherwise make payments in dollars.
Shortages in China in the availability of foreign currency may also restrict our
ability to pay  dividends.  We cannot be  certain  that the  Chinese  regulatory
authorities will not impose more stringent restrictions on the convertibility of
the Renminbi, especially with respect to foreign exchange transactions.

The value of our common  stock will be  affected by the  foreign  exchange  rate
between Dollars and Renminbi.

         To the extent that we need to convert  dollars  into  Renminbi  for our
operational  needs,  should the Renminbi  appreciate  against the U.S. dollar at
that time,  our  financial  position  and the price of our  common  stock may be
adversely  affected.  Conversely,  if we decide to  convert  our  Renminbi  into
dollars for the  purpose of paying  dividends  on our common  stock or for other
business purposes and the dollar  appreciates  against the Renminbi,  the dollar
equivalent of our earnings from our subsidiaries in China would be reduced.

         Until  1994,  the  Renminbi   experienced  a  gradual  but  significant
devaluation  against most major currencies,  including dollars,  and there was a
significant  devaluation  of the Renminbi on January 1, 1994 in connection  with
the replacement of the dual exchange rate system with a unified managed floating
rate foreign exchange system.  Since 1994, the value of the Renminbi relative to
the U.S.  Dollar has remained stable and has  appreciated  slightly  against the
U.S.  dollar.  Countries,  including  the United  States,  have  argued that the
Renminbi is artificially  undervalued due to China's current  monetary  policies
and have pressured China to allow the Renminbi to float freely in world markets.
On July 21, 2005 the PRC  government  changed its policy of pegging the value of
the  Renminbi to the dollar.  Under the new policy the  Renminbi is permitted to
fluctuate  within a narrow  and  managed  band  against a basket  of  designated
foreign  currencies.  This change in policy has resulted in an approximate  2.0%
appreciation  in the  Renminbi  against  the  dollar.  While  the  international
reaction to the Renminbi revaluation has generally been positive,  there remains
significant  international  pressure on the PRC government to adopt an even more
flexible  currency  policy,  which could result in further and more  significant
appreciation of the Renminbi against the dollar.

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

We may be unable to enforce  our legal  rights  due to  policies  regarding  the
regulation of foreign investments in China.

         The PRC's legal system is a civil law system based on written statutes,
in which system  decided legal cases have little value as precedents  unlike the
common  law  system  prevalent  in the  United  States.  The PRC does not have a
well-developed,   consolidated  body  of  laws  governing   foreign   investment
enterprises.  As a  result,  the  administration  of  laws  and  regulations  by
government agencies are subject to considerable  discretion and variation on the
part of the  PRC  government,  including  its  courts,  and  may be  subject  to
influence  by external  forces  unrelated  to the legal  merits of a  particular
matter. China's regulations and policies with respect to foreign investments are
evolving.  Definitive  regulations  and policies with respect to such matters as
the permissible percentage of foreign investment and permissible rates of equity
returns  have not yet been  published.  As a result,  we may not be aware of any
violations  of these  policies  and rules  until some time after the  violation.
Statements  regarding these evolving policies have been conflicting and any such
policies, as administered,  are likely to be subject to broad interpretation and
discretion  and  to  be  modified,   perhaps  on  a  case-by-case   basis.   The
uncertainties  regarding such  regulations  and policies  present risks that may
affect our  ability  to achieve  our  business  objectives.  If we are unable to



                                       15
<PAGE>

enforce  any legal  rights we may have under our  contracts  or  otherwise,  our
ability to compete with other  companies in our industry could be materially and
negatively affected. In addition,  any litigation in China may be protracted and
result in substantial cost and diversion of resources and management attention.

You may experience difficulties in effecting service of legal process, enforcing
foreign  judgments or bringing  original  actions in China based upon U.S. laws,
including  the federal  securities  laws or other foreign laws against us or our
management.

         Almost all of our current operations are conducted in China.  Moreover,
all of our directors and officers are nationals or residents of China.  All or a
substantial  portion of the assets of these  persons  are  located  outside  the
United  States and in the PRC.  As a result,  it may not be  possible  to effect
service of process  within the United  States or  elsewhere  outside  China upon
these persons. In addition, uncertainty exists as to whether the courts of China
would recognize or enforce  judgments of U.S. courts obtained against us or such
officers and/or directors  predicated upon the civil liability provisions of the
securities  law of the United  States or any state  thereof,  or be competent to
hear original  actions  brought in China  against us or such persons  predicated
upon the securities laws of the United States or any state thereof.

Recent PRC  regulations  relating to  acquisitions  of PRC  companies by foreign
entities may create  regulatory  uncertainties  that could restrict or limit our
PRC subsidiary's ability to operate, including its ability to pay dividends.

         The PRC State  Administration  of Foreign  Exchange,  or SAFE, issued a
public notice in January 2005 concerning foreign exchange regulations on mergers
and  acquisitions in China. The public notice states that if an offshore company
controlled by PRC residents  intends to acquire a PRC company,  such acquisition
will  be  subject  to  strict  examination  by  the  relevant  foreign  exchange
authorities.  The public  notice also states that the  approval of the  relevant
foreign  exchange  authorities  is required  for any sale or transfer by the PRC
residents of a PRC  company's  assets or equity  interests to foreign  entities,
such as CBBI, for equity interests or assets of the foreign entities.

         In April 2005, SAFE issued another public notice further explaining the
January notice.  In accordance with the April notice, if an acquisition of a PRC
company by an offshore company controlled by PRC residents has been confirmed by
a Foreign  Investment  Enterprise  Certificate  prior to the promulgation of the
January  notice,  the PRC residents must each submit a registration  form to the
local SAFE branch with respect to their  respective  ownership  interests in the
offshore  company,  and must also file an amendment to such  registration if the
offshore  company  experiences  material  events,  such as  changes in the share
capital, share transfer,  mergers and acquisitions,  spin-off transaction or use
of assets in China to  guarantee  offshore  obligations.  The April  notice also
provides  that  failure to comply  with the  registration  procedures  set forth
therein may result in  restrictions  on our PRC  resident  shareholders  and BAK
International and BAK Battery,  including their ability to distribute profits to
CBBI.  Pending the promulgation of detailed  implementation  rules, the relevant
government  authorities are reluctant to commence processing any registration or
application for approval required under the SAFE notices.

         Our business  operations or future strategy could be adversely affected
by the  interpretations and implementation of the SAFE notices . For example, we
may be subject to more stringent review and approval process with respect to our
foreign exchange  activities,  including remittance of dividends to CBBI and the
making of foreign-currency-denominated borrowings.

Risks Related to our Common Stock

The market price for our common stock may be volatile.

         The market price for our common  stock is likely to be highly  volatile
and subject to wide fluctuations in response to factors including the following:

         o        the lack of depth and  liquidity  of the market for our common
                  stock,

         o        actual or anticipated  fluctuations in our quarterly operating
                  results,



                                       16
<PAGE>

         o        announcements  of  new  products  or  services  by us  or  our
                  competitors,

         o        changes in financial estimates by securities analysts,

         o        conditions in the lithium ion battery market,

         o        changes in the economic  performance  or market  valuations of
                  other companies involved in lithium ion battery production,

         o        our sales of common stock,

         o        investor perceptions of us and our business,

         o        changes in the estimates of the future size and growth rate of
                  our markets,

         o        announcements by our competitors of significant  acquisitions,
                  strategic partnerships, joint ventures or capital commitments,

         o        additions or departures of key personnel, and

         o        potential  litigation,  or conditions in the mobile  telephone
                  market.

         In  addition,  the stock  market in general,  and the  over-the-counter
market in particular, have experienced significant price and volume fluctuations
that have often been unrelated or  disproportionate to the performance of listed
companies. These broad market and industry factors may seriously harm the market
price of our common stock, regardless of our operating performance.

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

         A total of 43.4% of our  common  stock  is held by  Xiangqian  Li,  our
President and Chief  Executive  Officer and Chairman of our Board,  and 44.6% of
our common stock is held by our directors and executive officers,  collectively.
As a result,  our  directors  and  executive  officers are able to influence the
outcome of  stockholder  votes on various  matters,  including  the  election of
directors  and   extraordinary   corporate   transactions   including   business
combinations.  Furthermore,  the current ratios of ownership of our common stock
reduce the public  float and  liquidity  of our common  stock  which can in turn
affect the market price of our common stock.

Only a limited trading market for our common stock exists.

         Historically, we have had limited trading in our common stock, in part,
as a result  of the  limited  public  float in our  stock and as a result of our
operating history. Unless a substantial number of shares are sold by the selling
shareholders and other CBBI shareholders into the open market, an active trading
market  for  shares of our  common  stock may never  develop.  Without an active
market in our shares, the liquidity of the stock could be limited and prices for
the common stock would be depressed.

         Our common stock is traded in the  over-the-counter  market through the
Over-the-Counter  Electronic  Bulletin  Board.  Our  common  stock  may never be
included for trading on any stock exchange or through any other quotation system
(including, without limitation, the NASDAQ Stock Market).

Sales of  substantial  amounts of our common stock in the market could cause the
price to fall.

         As there is only limited trading  activity in our securities,  the sale
of a  substantial  amount of our common  stock in the market  over a  relatively
short  period of time could  result in  significant  fluctuations  in the market
price of our common  stock and could cause our common  stock  price to fall.  We
have  filed with the  Securities  and  Exchange  Commission  (i) a  registration
statement on Form SB-2 (file number  333-122209),  as amended,  registering  the
resale of 13,639,916 shares of our common stock by certain selling  stockholders
as described therein and (ii) a registration statement on Form SB-2 (file number
333-130247)  registering  the resale of 8,531,852  shares of our common stock by



                                       17
<PAGE>

certain selling stockholders as described therein. If and when such registration
statements are declared effective, the offers and sales of the shares covered by
such  registration  statements by those  selling  stockholders  could  adversely
affect the price for shares of our common stock in the open market.

Our common stock could be subject to additional  regulation as a "penny  stock,"
which may reduce the liquidity of our common stock.

         If the trading  price of our common  stock falls below $5.00 per share,
the open-market trading of our common stock will be subject to the "penny stock"
rules. The "penny stock" rules impose additional sales practice  requirements on
broker-dealers  who sell securities to persons other than established  customers
and accredited investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000 or, together with his or her spouse, $300,000).
For transactions  covered by these rules, the broker-dealer  must make a special
suitability  determination  for the purchase of securities and have received the
purchaser's written consent to the transaction before the purchase.

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

         Stockholders  should  be  aware  that,  according  to SEC  Release  No.
34-29093, the market for penny stocks has suffered in recent years from patterns
of fraud and abuse.  Such  patterns  include  (i)  control of the market for the
security by one or a few  broker-dealers  that are often related to the promoter
or issuer; (ii) manipulation of prices through prearranged matching of purchases
and sales and false and misleading  press releases;  (iii) boiler room practices
involving  high-pressure  sales tactics and  unrealistic  price  projections  by
inexperienced sales persons; (iv) excessive and undisclosed bid-ask differential
and markups by selling broker-dealers; and (v) the wholesale dumping of the same
securities by promoters and broker-dealers after prices have been manipulated to
a desired level,  along with the resulting  inevitable  collapse of those prices
and with consequent investor losses.

We are obligated to indemnify our officers and directors for certain losses they
suffer.

         Our Bylaws provide for the indemnification of our directors,  officers,
employees,  and  agents,  under  certain  circumstances,   against  liabilities,
attorney's  fees and other expenses  incurred by them in any litigation to which
they become a party arising from their  association with or activities on behalf
of us to the maximum  extent  permitted  by Nevada  law.  If we are  required to
indemnify any persons under this policy,  the amounts we would have to pay could
be material, and we may be unable to recover any of these funds from any source.

We recently  adopted  amendments to our Bylaws that could  entrench our Board of
Directors and prevent a change in control.

         Effective January 20, 2005, we adopted Amended and Restated Bylaws that
(i) increased the percentage of stockholders  required to call special  meetings
of  stockholders  from  10%  to  30%,  (ii)  eliminated  a  provision   allowing
stockholders to fill vacancies in the Board if such vacancies were not filled by
the  Board,  (iii)  include  a new  provision  providing  that  no  contract  or
transaction  between us and one or more of our  directors or officers is void if
certain  criteria are met and (iv) allow for the  amendment of our Bylaws by the
Board of Directors rather than our stockholders.  Collectively, these provisions
may allow our Board of Directors  to entrench the current  members and prevent a
change in control of our company in  situations  where a change in control would
be beneficial to our stockholders.

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

         We currently  lease 8,486  square  meters in the  aggregate  for office
space,  manufacturing  facilities  and  dormitory  space.  We lease 3,000 square
meters for office space and manufacturing  operations  pursuant to a lease which
runs from June 1, 2003 to June 1, 2008. Our current rent due under that lease is
$2,781 a  month.  We also  lease  2,500  square  meters  for  office  space  and



                                       18
<PAGE>

manufacturing  facilities pursuant to a lease with a term beginning December 16,
2001 and ending  December  15,  2006.  We owe lease  payments  of $2,329 a month
during the term of this second lease.  We also lease an additional  2,986 square
meters for dormitory  space  pursuant to a lease with a term  beginning  July 1,
2005 and ending June 30, 2008.  We owe lease  payments of $2,583 per month under
this lease.

         In addition, currently we have completed construction of 174,784 square
meters of new facilities comprised of manufacturing facilities,  warehousing and
packaging  facilities,  dormitory  space and  administrative  offices at the BAK
Industrial Park. Of that space,  107,388 square meters will be new manufacturing
facilities.  We have  completed  construction  and put  into  use an  additional
administrative  area,  production  facility,  four manufacturing  facilities,  a
warehouse  and  packaging  facility,  two  dormitories  and one dining hall.  At
present, we have no payment obligations related to these facilities, although we
continue to make payments  regarding the  construction  of the facility as costs
arise. We do not own the tract of property on which we are  constructing the new
manufacturing  plant and related  facilities.  We have applied for, but have not
obtained,  a  certificate  of land use  right  for the  property  and  those new
facilities.

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

         We are not a party to any  legal  proceedings,  nor are we aware of any
threatened  or  contemplated  proceedings  which  are  expected  to  result in a
material  adverse effect on our  consolidated  financial  position or results of
operation.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

         No matter was  submitted to a vote of our security  holders  during the
fiscal year covered by this report through solicitation of proxies or otherwise.

PART II

ITEM 5.  MARKET FOR COMMON  EQUITY AND  RELATED  STOCKHOLDER  MATTERS  AND SMALL
         BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
         -----------------------------------------------------------------------

Common Stock and Dividend Policy

         There is no established public trading market for our common stock, and
our common  stock is not listed for  trading on any  securities  exchange or the
NASDAQ.  However,  over-the-counter trades in our common stock are quoted on the
NASD's  Over-the-Counter  Bulletin Board under the symbol "CBBT.OB." On November
30,  2005,  the last  reported  sales  price for our common  stock was $7.50 per
share.

         The following table sets forth, for the quarters  indicated,  the range
of closing high and low bid prices of our common stock as reported by the NASD's
Over-the-Counter  Bulletin Board, as adjusted for all previously  effected stock
splits.  These quotations reflect  inter-dealer  prices,  without retail markup,
markdown or commission and may not represent actual transactions.





                                       19
<PAGE>

                                                               Common Stock
                                                         -----------------------
         By Quarter Ended                                   High         Low
         Fiscal 2003                                     ----------   ----------
         -----------------------------------------------
         March 31, 2003..............................        $.39         $.37
         June 30, 2003...............................        $.60         $.60
         September 30, 2003..........................       $1.01        $1.01
         December 31, 2003...........................       $1.01        $1.01
         Fiscal 2004
         -----------------------------------------------
         March 31, 2004..............................       $1.01        $1.01
         June 30, 2004...............................       $1.01        $1.01
         September 30, 2004..........................       $1.45        $1.02
         December 31, 2004...........................       $3.50        $1.25
         Fiscal 2005
         -----------------------------------------------
         March 31, 2005..............................       $7.30        $2.80
         June 30, 2005...............................       $8.50        $5.00
         September 30, 2005..........................       $7.75        $6.54
-----------

         In reviewing the foregoing  table, it should be noted that the exchange
of stock by which China BAK acquired BAK  International  and its  subsidiary BAK
Battery occurred on January 20, 2005.

         As of November 30,  2005,  there were  48,878,396  shares of our common
stock outstanding held by approximately 148 stockholders of record.

         We have never paid any cash  dividends on our common  stock.  We do not
anticipate  paying any cash dividends or making any other cash  distributions on
our common stock in the foreseeable future. Should we decide in the future to do
so,  as a  holding  company,  our  ability  to  pay  dividends  and  meet  other
obligations  depends upon the receipt of dividends  or other  payments  from our
operating subsidiaries.  Our operating subsidiaries may be subject, from time to
time, to restrictions on their ability to make distributions to us, including as
a result  of  restrictive  covenants  in loan  agreements,  restrictions  on the
conversion  of local  currency  into  dollars or other hard  currency  and other
regulatory restrictions.  We currently intend to retain future earnings, if any,
to finance operations and the expansion of our business.

         Please see Item 11 "Security Ownership of Certain Beneficial Owners and
Management  and Related  Shareholder  Matters" for a  description  of securities
authorized for issuance under equity compensation plans.

Recent Sales of Unregistered Securities

         On  September  16, 2005 the Company  issued an  aggregate  of 7,899,863
shares of its  common  stock to  certain  accredited  investors  as that term is
defined in Rule 502 of  Regulation D  promulgated  under the  Securities  Act of
1933, as amended,  at a purchase price of $5.50 per share,  for a total purchase
price of  $43,449,246.  In  connection  with the closing of that  issuance,  the
Company  issued  warrants to purchase an aggregate  of 631,989  shares of common
stock at an exercise  price of $7.92 per share  exercisable  for a period ending
three years  after the date of issuance to certain  persons as part of an agreed
upon fee. The securities were issued in reliance upon the exemption contained in
Section  4(2) of the  Securities  Act of  1933,  as  amended,  and  Rule  506 of
Regulation D  promulgated  under the  Securities  Act of 1933,  as amended.  The
purchasers  were not  solicited  through  any form of  general  solicitation  or
advertising. The purchasers represented to the Company, among other things, that
they were acquiring the  securities for investment  purposes only and not with a
view to or for sale in connection with any distribution  thereof, that they were
accredited  investors  as that  term is  defined  in Rule  502 of  Regulation  D
promulgated  under the  Securities  Act of 1933,  as  amended,  and  appropriate
legends were placed upon the securities  issued.  All purchasers  were provided,
and  acknowledged  that  they had  adequate  access  to,  information  about the
Company.

         On January 20, 2005 we completed a stock exchange  transaction with the
stockholders   of  BAK   International,   Ltd.,  a  Hong  Kong   company   ("BAK
International").  The exchange was consummated  under Nevada law pursuant to the
terms of a Securities  Exchange Agreement dated effective as of January 20, 2005



                                       20
<PAGE>

by and among CBBI, BAK International and the stockholders of BAK  International.
Pursuant to the Securities  Exchange  Agreement,  we issued 39,826,075 shares of
our  common  stock,  par value  $0.001  per share,  to the  stockholders  of BAK
International,  representing approximately 97.2% of our post-exchange issued and
outstanding common stock, in exchange for 100% of the outstanding  capital stock
of BAK International. We presently carry on the business of Shenzhen BAK Battery
Co.,  Ltd.,  a  Chinese   corporation  and  BAK   International's   wholly-owned
subsidiary, or BAK Battery.

         The 39,826,075 shares were issued in 2 separate transactions. The first
transaction   culminated   in  the  issuance  of   31,225,642  to  the  original
shareholders  of  Shenzhen  BAK  Battery,   Co.,  Ltd.  for  an  aggregate  cash
consideration of $11,500,000.  This amount  approximated the  capitalization  of
Shenzhen BAK Battery, Ltd. at the time of the agreement was entered into.

         The second  transaction  culminated in the issuance of 8,600,433 shares
for an aggregate cash consideration of $17,000,000. ($15,528,629 net of issuance
costs).

         The  foregoing  shares were issued in private  transactions  or private
placements  intending to meet the  requirements  of one or more  exemptions from
registration.  In  addition  to  any  noted  exemption  below,  we  relied  upon
Regulation D and Section  4(2) of the  Securities  Act of 1933,  as amended (the
"Act").   The  investors  were  not  solicited   through  any  form  of  general
solicitation or advertising,  the transactions being non-public  offerings,  and
the sales were conducted in private  transactions where the investor  identified
an investment intent as to the transaction without a view to an immediate resale
of the  securities;  the shares were  "restricted  securities" in that they were
both  legended with  reference to Rule 144 as such and the investors  identified
they were  sophisticated  as to the  investment  decision  and in most  cases we
reasonably  believed the investors were  "accredited  investors" as such term is
defined under Regulation D based upon statements and information  supplied to us
in writing and verbally in connection with the  transactions.  We never utilized
an underwriter for an offering of our securities and no sales  commissions  were
paid to any third party in connection with the above-referenced sales.

         On June 10,  2004,  we  issued  99,858  shares of our $ 0.001 par value
common stock in full settlement of debt, in the amount of $49,929, owed to Harry
Miller,  our former  President  and Chief  Executive  Officer.  The price of the
transaction was $0.50 per share.  The issuance of these shares to Mr. Miller was
not  registered  under the  Securities  Act of 1933 in reliance on the exemption
therefrom  contained in Section 4(2) of such act and Regulation D as promulgated
thereunder.

ITEM 6.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  RESULTS OF  OPERATION  AND
         FINANCIAL CONDITION
         -----------------------------------------------------------------------

         The following  management's  discussion and analysis  should be read in
conjunction with our consolidated financial statements and the notes thereto and
the other financial information appearing elsewhere in this item. In addition to
historical    information,    the   following    discussion   contains   certain
forward-looking   information.  See  "Special  Note  Regarding  Forward  Looking
Statements"  above for certain  information  concerning  those  forward  looking
statements

         Our financial  statements  are prepared in US Dollars and in accordance
with accounting principles generally accepted ("GAAP") in the United States. See
"Exchange  Rates" below for  information  concerning the exchange rates at which
Renminbi  were  converted  to US  Dollars  at  various  pertinent  dates and for
pertinent periods.

Overview

         CBBI  is a  holding  company  whose  Hong  Kong-based  subsidiary,  BAK
International,   and  China-based   subsidiary,   BAK  Battery,   focus  on  the
manufacture,  commercialization  and  distribution of a wide variety of standard
and  customized   lithium  ion  rechargeable   batteries  for  use  in  cellular
telephones, as well as various other portable electronic applications, including
high-power handset telephones,  laptop computers,  power tools, digital cameras,
video camcorders,  MP3 players,  electric bicycles,  hybrid/electric motors, and
general industrial applications.  We manufacture five types of batteries:  steel
case cell,  aluminum case cell,  cylindrical case cell, Li-ion polymer cells and
industrial batteries,  although the majority of our income is generated from the
sale of steel case cells.



                                       21
<PAGE>

         CBBI acquired BAK International and, as a result,  BAK  International's
wholly-owned  subsidiary,  BAK  Battery,  on January  20,  2005,  by means of an
exchange of 39,826,075  shares of CBBI's common stock for all of the outstanding
shares  of  stock  of BAK  International.  However,  we have  accounted  for the
transaction  as a  recapitalization,  which  resulted  in  the  adoption  of the
historical  consolidated financial statements of BAK International,  as prepared
in accordance with United States GAAP, as the financial  statements of CBBI. See
Note 2 to our  consolidated  financial  statements  included  in this filing for
additional information regarding the accounting treatment of the acquisition and
its impact on our consolidated financial statements.

         On September 16, 2005, CBBI consummated the sale of 7,899,863 shares of
its common  stock to certain  accredited  investors  (as that term is defined in
Rule 502 of  Regulation  D  promulgated  under the  Securities  Act of 1933,  as
amended).  In connection  with the closing of that issuance,  the Company issued
warrants to purchase  an  aggregate  of 631,989  shares of common  stock,  at an
exercise price of $7.92 per share,  exercisable  for a period ending three years
after the date of issuance to certain persons as part of an agreed upon fee.

Certain Accounting Matters

         Substantially  all of our  revenue is derived  from the sale of battery
cells,  which we recognize  upon shipment or delivery  depending  upon the sales
order.  In the event goods are  returned,  revenue is reduced  and the  returned
goods are placed back in  inventory  during the period the goods are received by
us. Concurrent with the recognition of revenue, we record a warranty reserve for
product returns.  When determining the amount of such reserves,  we estimate the
amount of claims based upon our historical  experience  with product returns and
warranty claims.

         Cost of goods sold consists  primarily of raw  materials,  direct labor
and manufacturing  overhead.  Manufacturing  overhead  consists  primarily of an
allocation of purchasing and receiving costs, supplies, utilities, depreciation,
factory and equipment repairs and maintenance, and inspection fees.

         Selling  expenses  consist   primarily  of  payroll,   advertising  and
promotion,  depreciation and travel and entertainment.  Marketing or advertising
costs are incurred  primarily  to promote  ourselves  and our  products  through
printed advertisements in trade publications and to display our products through
attendance at industry trade exhibitions. We do not pay slotting fees, engage in
cooperative  advertising  programs,  participate in buy-down programs or similar
arrangements.  No material  estimates are required to determine our marketing or
advertising costs.

         General  and  administrative  expenses  consist  primarily  of payroll,
professional  fees,  insurance,  payroll  taxes  and  benefits,  general  office
expenses, travel and entertainment, transportation, and depreciation.

         Net income does not reflect  certain annual  appropriations  to reserve
funds in accordance with PRC regulations.  These appropriations are reflected in
the statement of retained earnings as a reduction in retained earnings.

Results of Operations

         Results of operations for the year ended September 30, 2005 as compared
to the year ended September 30, 2004.

Revenues

         Revenues  increased to $101.9 million for the year ended  September 30,
2005 as  compared  to $63.7  million  for the prior  year,  an increase of $38.2
million or 59.9%. Our revenues increased during 2005 primarily as a result of an
increase in the number of units sold, with a slight  improvement in average unit
selling prices. Revenues relating to steel case cells increased to $56.9 million
in 2005 from  $38.0  million in 2004,  an  increase  of $18.9  million or 49.7%,
primarily due to an increase in the number of units sold. Revenues from sales of
aluminum  case cells  increased  to $23.7  million for 2005 as compared to $13.1
million  in 2004,  an  increase  of $10.6  million  or 80.9%,  primarily  due to
increased sales volume.  Revenues relating to industrial  batteries increased to
$20.2 million in 2005 from $12.4 million in 2004, an increase of $7.8 million or
62.9%,  primarily due to an increase in the number of units sold.. Although most
of our  sales  were  made in  China,  we were  able to gain  market  share  both



                                       22
<PAGE>

domestically and  internationally  during the year because,  in our belief,  our
production  volume and  technological  advantage  gives us an advantage over our
competitors  with regard to supply  ability and cost.  We also  believe that our
gain in market  share was due in part to our  decision to  maintain  competitive
pricing,  the improved  quality of our products and the  improvements we made in
production efficiencies.

Gross Profit

         Gross  profit for the fiscal  year ended  September  30, 2005 was $25.7
million or 25.2% of revenues as  compared  to gross  profit of $13.8  million or
21.7% of revenues for the prior fiscal year.

         The increase in gross  profit,  as a percentage  of revenues,  resulted
from a combination of decreased  unit  manufacturing  costs and slightly  higher
average unit selling  prices.  While our cost of  manufacturing  steel case cell
units  decreased by 4.8% in fiscal 2005,  selling prices  decreased by less than
1.0%,  resulting  in an overall  increase in gross profit from 23.2% to 26.5% of
revenues.  In the aluminum case cell market,  unit manufacturing costs increased
by 8.2% in fiscal 2005,  while selling prices increased an average of only 6.5%,
thereby reducing gross profit from 21.9% to 20.7% of revenues. The 7.0% decrease
in unit selling prices for industrial batteries from fiscal 2004 to fiscal 2005,
however,  was more than  offset  by a 14.0%  improvement  in unit  manufacturing
costs,  resulting  in an  improvement  in gross  profit  from  24.1% to 29.8% of
revenues.  We did gain  market  share  during  the year due to our  decision  to
maintain competitive pricing while improving the quality of our products.

Selling Expenses

         Selling expenses increased to $4.0 million for the year ended September
30, 2005,  as compared to $1.9  million for the prior year,  an increase of $2.1
million or 114.2%.

         Salaries related to selling efforts increased to $2.0 million in fiscal
2005 from $830,000 for the prior year, an increase of $1.2 million.  An increase
in the number of employees in our sales and marketing  group and higher  average
salaries  paid  to the  sales  and  marketing  employees  in  fiscal  2005  were
responsible  for  this  increase.  We had 88  employees  engaged  in  sales  and
marketing as of September  30, 2005 as compared to 67 as of September  30, 2004.
In  connection  with the  introduction  of a formal  and  coordinated  marketing
campaign,  advertising  expenses  increased  to  $298,000  in  fiscal  2005 from
$201,200 in 2004, an increase of $96,800.  Filing fees,  promotion,  trademarks,
depreciation,  and other  related  selling and marketing  expenses  increased to
$1,725,600  for fiscal 2005 from  approximately  $476,700  for the prior  fiscal
year, an increase of $1,248,900, related to increased sales and selling efforts.

General and Administrative Expenses

         General and administrative expenses grew to $5.0 million for the fiscal
year ended  September  30, 2005 from $3.1 million for the prior fiscal year,  an
increase of $1.9  million or 61.0%.  As a percentage  of  revenues,  general and
administrative   expenses   were  4.9%  and  4.9%  in  fiscal   2005  and  2004,
respectively.  Despite the increase in general and administrative  expenses from
fiscal 2004 to fiscal  2005,  those  expenses  remained  manageable  relative to
revenues.

         Salaries and benefits,  including costs of training,  increased to $1.4
million in fiscal 2005 from $1.2 million in the prior  fiscal year,  an increase
of $234,000 or 19.8%, primarily as a result of additional employees.  We had 500
employees in general and  administration  positions as of September 30, 2005, as
compared to 451 employees as of September 30, 2004.  Professional fees increased
$224,000 from fiscal 2004 to fiscal 2005,  reflecting  the  additional  costs of
operating as a public Company since January 2005.

Research and Development Expenses

         Research and development  expenses increased to $542,000 for the fiscal
year ended September 30, 2005 as compared to $329,000 for the prior fiscal year,
an increase of $213,000 or 64.7%. New initiatives,  such as rechargeable lithium
polymer  batteries and LiNiCoO2 anode research,  depreciation  from research and
development  equipment  additions  and an  increase in patent  applications  and
maintenance contributed to the increase.



                                       23
<PAGE>

Bad Debts

         Bad debt expense  totaled  $770,000 for the fiscal year ended September
30,  2005 as  compared to $327,000  for the prior  fiscal  year,  an increase of
$443,000 or 135.5%.  As a percentage  of revenues,  bad debts were 0.8% and 0.5%
for fiscal 2005 and fiscal 2004,  respectively.  We believe that the reserve for
bad debts as of  September  30,  2005 is  adequate,  and we will  adjust  future
reserves as we gain more experience with our customers.

Operating Income

         As a result of the  foregoing,  operating  income totaled $15.3 million
for the fiscal year ended September 30, 2005 as compared to operating  income of
$8.1 million for the fiscal year ended  September  30, 2004, an increase of $7.2
million or 88.0%, on a 59.9% increase in revenues.

         As a percentage of revenues,  operating income was 15.0% in fiscal 2005
as compared  to 12.8% for the prior  fiscal  year.  This  increase in  operating
income as a  percentage  of revenues  was  substantially  due to the increase in
gross margin from fiscal 2004 to fiscal 2005.

Finance Costs

         Finance  costs  increased  to $2.4  million  for the fiscal  year ended
September  30, 2005 as compared to $1.0 million for the prior  fiscal  year,  an
increase  of $1.4  million or  138.1%.  The  increase  was  attributable  to the
increase in the amount of our short term bank loans in fiscal 2005 compared with
that  outstanding in fiscal 2004. We had $39.5 million in short-term  bank loans
as of  September  30,  2005,  as  compared  to $27.3  million  and $3.5  million
outstanding  as of September 30, 2004 and 2003,  respectively.  Short-term  bank
loans bear  interest at annual rates ranging from 4.5% to 6.1%,  and  maturities
are generally  less than twelve  months.  The funds  obtained from the increased
borrowings  were  primarily  used  to  fund  working  capital  and  to  purchase
equipment.  The Company  expects to replace the short term debt incurred to fund
these long-term  equipment  acquisitions with comparable  long-term debt once it
formally acquires its certificate of land use right.

Provision for Income Taxes

         We  temporarily  enjoy  favorable tax treatment as a result of locating
our main  production  facilities  in the Shenzhen  Special  Enterprise  Zone. In
accordance with the relevant income tax laws applicable to enterprises operating
in the Shenzhen  Special  Economic  Zone of the PRC,  the taxable  income of the
Company is fully exempt from income tax for 2 years ("tax holiday"),  commencing
from the first profit making year of operations, followed by a 50% exemption for
the  immediate  next three years ("tax  preferential  period"),  after which the
profits of the Company will be taxable at the full reduced rate for New and High
Technology Enterprises,  currently 15%. In addition, the Company also enjoys the
same tax  holiday  and tax  preferential  period  treatments  on the  additional
investments  that were  approved  during  fiscal year 2005.  The  percentage  of
taxable  income  enjoying a tax  holiday in 2005 is 55.88%;  the 44.12%  balance
enjoys tax preferential  period  treatment.  We anticipate a tax rate of 7.5% of
profits on the  original  investment  portion  through the 2006  calendar  year,
before  reverting to the anticipated  standard  corporate rate of 15% afterward.
The additional  investment  will enjoy the tax holiday through the 2006 calendar
year and then be taxed at 7.5% through the 2009 calendar year.

         Further,  on  August  11,  2005,  Shenzhen  BAK  was  recognized  as  a
Foreign-Invested,  Advanced-Technology  Enterprise  by the Shenzhen  government,
whereby Shenzhen BAK will enjoy an additional three year tax preferential period
for all of its taxable  income after the  expiration of the original  three year
tax  preferential  period.  If the  Company  fails to qualify  for a reduced tax
program  following  the end of the  2009  calendar  year,  the  Company  will be
required to pay tax at the full 15% tax rate of its taxable income applicable to
Shenzhen starting in 2010.

         Income taxes  increased to $527,000  for the year ended  September  30,
2005, as compared to $394,000 for the previous  year. We commenced  paying taxes
at the annual rate of 7.5% for the final nine months of fiscal  2004,  resulting
in an  effective  tax rate of 5.5% for fiscal 2004.  Although  income taxes were
paid at a 7.5% rate for all of 2005 on the original investment portion, no taxes
were due in 2005 for the additional investment due to the tax holiday, resulting
in a lower overall rate of 4.1% The Company has purchased  $173,000 of equipment
made in China during the year ended September 30, 2005, and will be eligible for
a tax credit, equal to 40% of theses purchases, against additional future income
tax.



                                       24
<PAGE>

Net Income

         Primarily  as a result  of  increased  sales  during  fiscal  2005,  we
increased  our net income to $12.4  million as compared to $6.7  million for the
prior year, an increase of $5.6 million or 83.4%.

Results of operations  for the year ended  September 30, 2004 as compared to the
year ended September 30, 2003

Revenues

         Revenues  increased  to  $63.75  million  for  the  fiscal  year  ended
September 30, 2004 as compared to $20.05 million for the prior fiscal year ended
September 30, 2003, an increase of $43.70  million or 218%.  Revenues from sales
of  aluminum  case cell  batteries  were  $13.08  million,  an increase of $12.8
million,  as compared to $280,000 in the prior year. This increase was primarily
due to increased  volume  resulting from  additional  product  offerings and our
increased  production.  Revenues relating to steel case cell batteries increased
to $50.41  million from $19.68  million in the prior year, an increase of $30.73
million or 156%.  This increase  also was due to increased  volume of sales as a
result of additional product offerings and our increased  production.  In fiscal
year  2004,  our  customers   continued  to  demand  price  concessions,   while
simultaneously  demanding  greater  quality and services from us. In response to
these  conditions,  we acted to contain of costs and provided price  reductions.
Despite continued pricing pressure  resulting in selling price reductions during
the year in both  aluminum  case and steel  case  markets,  we were able to gain
market share both domestically and  internationally  because, in our belief, our
production  volume and  technological  advantage  gives us an advantage over our
competitors with regard to supply ability and cost.

Gross Profit

         Gross  profit for the fiscal year ended  September  30, 2004 was $13.82
million or 21.7% of revenues as  compared  to gross  profit of $5.52  million or
27.5% of revenues for the prior fiscal year.

         The  reduction in gross profit,  as a percentage of revenues,  resulted
from  a  combination   of  reduced  unit  selling   prices  and  increased  unit
manufacturing  costs  stemming from an increase in prices for most raw materials
used in the  manufacturing  process.  Steel  case cell  battery  selling  prices
decreased by 12.4% during  fiscal 2004,  while our cost of  manufacturing  steel
case cell units decreased by only about 5.5%,  resulting in an overall  decrease
in gross  profit from  26.65% to 20.42% of revenues  from the sale of steel case
cell units in fiscal 2004.  In the aluminum case cell market,  price  reductions
averaged 21.9% and unit costs increased by 10.6%,  thereby reducing gross profit
in our aluminum  case products from 21.69% to 19.38% of revenues in fiscal 2004.
We did,  however,  gain market share due in part to our decision to maintain low
pricing,  the improved  quality of our products and the  improvements we made in
manufacturing efficiencies.

Selling Expenses

         Selling  expenses  increased  to  $1.88  million  for  the  year  ended
September  30, 2004 as compared to $445,800  for the prior year,  an increase of
$1.43 million or about 321.2%.

         Salaries related to selling efforts  increased to $740,000 from $80,000
for the  prior  year,  an  increase  of  $660,000,  primarily  as a result of an
increase in the number of employees in our sales and marketing  group and higher
average salaries paid to the sales and marketing  employees in fiscal 2004. More
sales and marketing group efforts were required to continue gaining market share
and to grow revenues.  We had 67 employees  engaged in sales and marketing as of
September  30, 2004 as compared to 51 as of September  30, 2003.  In  connection
with the introduction of a formal and coordinated marketing campaign,  marketing
expenses  increased to $610,000  from  $230,000  incurred in the prior year,  an
increase of $380,000.  Transportation,  filing fees, promotion,  trademarks, and
other related  selling and marketing  expenses  increased to $520,000 for fiscal
2004 from $132,000 for the prior fiscal year,  an increase of $388,000,  related
to increased sales and selling efforts.

General and Administrative Expenses

         General  and  administrative  expenses  grew to $3.14  million  for the
fiscal year ended  September  30,  2004 as  compared  to $804,600  for the prior
fiscal year, an increase of $2.3 million or 290.4%. As a percentage of revenues,
general and administrative expenses were 4.9% and 4.0% in fiscal 2004 and fiscal



                                       25
<PAGE>

2003,  respectively.  The  increase in the general and  administrative  expenses
stemmed from an increase in our  infrastructure  to support the increased  sales
levels  during  fiscal  2004  through  facilities  expansion  and the  hiring of
additional  employees.  Despite  the  increase  in  general  and  administrative
expenses from fiscal 2003 to fiscal 2004,  those  expenses  remained  manageable
relative to revenues.

         Salaries and benefits,  including costs of training, increased to $1.27
million in fiscal 2004 from  $260,000 as compared to the prior fiscal  year,  an
increase  of  $1.01  million  or  388%,  primarily  as a  result  of  additional
employees.  We had 99  employees in machinery  and  engineering  positions as of
September  30,  2004,  as compared to 27  employees  as of  September  30, 2003.
Increases  in  office  expenses,  insurance,   professional  fees,  maintenance,
recruitment,  and other  administrative  expenses accounted for the remainder of
the increase in this  category from fiscal 2003 to fiscal 2004,  increases  also
related to the increased number of employees.

Research and Development Expenses

         Research and development  expenses increased to $329,000 for the fiscal
year ended September 30, 2004 as compared to $117,000 for the prior fiscal year,
an increase of $212,000 or 182%.  The increase in our  research and  development
staff to 107 as of September  30, 2004 from 58 as of September  30, 2003 was the
primary factor  accounting for the increase in this category.  New  initiatives,
such as rechargeable lithium polymer batteries research and development,  and an
increase in patent  applications  and  maintenance  required  incremental  staff
hiring contributed to the increase.

Bad Debts

         Bad debt expense  totaled  $327,000 for the fiscal year ended September
30,  2004 as  compared  to $448,000  for the prior  fiscal  year,  a decrease of
$121,000 or 27%. As a percentage  of revenues,  bad debts were 0.5% and 2.2% for
fiscal 2004 and fiscal 2003,  respectively.  We believe that the reserve for bad
debts as of September 30, 2004 was adequate,  and we will adjust future reserves
as we gain more experience with our customers.

Operating Income

         As a result of the  foregoing,  operating  income totaled $8.15 million
for the fiscal year ended September 30, 2004 as compared to operating  income of
$3.70 million for the fiscal year ended September 30, 2003, an increase of $4.45
million or 120%.

         As a percentage of revenues,  operating income was 12.8% in fiscal 2004
as compared to 18.5% for the prior  fiscal  year.  This  reduction  in operating
income as a percentage  of revenues was  substantially  due to the  reduction in
levels of gross profit from fiscal 2003 to fiscal 2004.

Finance Costs

         Finance  costs  increased  to $1.01  million  for the fiscal year ended
September  30,  2004 as  compared  to $123,000  for the prior  fiscal  year,  an
increase of $887,000 or 721%. The increase was  attributable  to the increase in
the amount of our outstanding debt in fiscal 2004 compared with that outstanding
in fiscal 2003. We had $49.89  million in short-term  loans and notes payable as
of September 30, 2004 as compared to $9.58 million  outstanding  as of September
30, 2003. Short-term loans and notes payable are comprised of various short-term
bank loans and promissory notes, bearing interest at rates ranging from 4.54% to
5.84%,  and maturities of generally less than twelve months.  The funds obtained
from the  increased  borrowings  were used to  construct  our new  manufacturing
facilities  and to  purchase  associated  equipment,  which  resulted  in $40.31
million of capital costs. The remaining  proceeds of the borrowing were used for
working capital purposes.

Provision for Income Taxes

         We enjoy a temporary  favorable  tax  treatment as a result of locating
our main  production  facilities  in the Shenzhen  Special  Enterprise  Zone. We
anticipate a tax rate of 7.5% of profits  through the 2009  calendar year before
reverting to the anticipated standard corporate rate of 15%.

         Taxes  increased to $394,000 for the year ended  September  30, 2004 as
compared to no taxes for the previous  year.  We  commenced  paying taxes at the
annual rate of 7.5% in 2004,  two years after we first had net income;  however,



                                       26
<PAGE>

because  these  taxes are based on a  calendar  year we only paid  taxes for the
final nine months of fiscal 2004, resulting in an effective tax rate of 5.5% for
fiscal 2004.

Net Income

         Primarily  as a result  of  increased  sales  during  fiscal  2004,  we
increased  our net income to $6.75  million as compared to $3.58 million for the
prior year, an increase of $3.17 million or about 89%.

Liquidity and Capital Resources

         We have historically financed our liquidity requirements from a variety
of  sources,  including  short-term  borrowings  under bank  credit  agreements,
promissory  note  issuances,  capital stock  issuances and internally  generated
cash.  As of  September  30,  2005,  we had cash and cash  equivalents  of $52.4
million, as compared to $10.3 million as of September 30, 2004. Included in cash
and cash  equivalents are cash deposits that are pledged to banks in the amounts
of $19.4 million and $7.1 million at September 30, 2005 and 2004,  respectively.
Typically,   banks  in  the  PRC  require  borrowers  to  maintain  deposits  of
approximately 20% to 100% of the outstanding loan balances.  The individual bank
loans have  maturities  ranging from 5 to 12 months,  which  coincides  with the
periods the cash remains pledged to the banks.

         We had a working  capital  surplus of $20.0 million as of September 30,
2005,  as  compared  to a working  capital  deficiency  of $26.2  million  as of
September 30, 2004, an  improvement  of $46.2 million in working  capital.  This
improvement was primarily attributable to the $56.0 million of net proceeds from
the $17.0 million and $43.4 million  equity raises in January 2005 and September
2005, respectively.  We had short term borrowings maturing in less than one year
of $69.1  million as of September  30, 2005,  as compared to $49.9 million as of
September 30, 2004, an increase of $19.2 million. We currently expect to be able
to extend the  maturities of our  short-term  debt once we formally  acquire our
certificate  of land use  right.  If we are not able to do so,  we will  have to
refinance  such  short-term  debt as it becomes due or to repay that debt to the
extent we have cash available from operations or from the proceeds of additional
issuances of capital stock.














                                       27
<PAGE>

         As of September 30, 2005,  the principal  outstanding  under our credit
facilities and lines of credit were as follows:

                                                               (In thousands)
                                                                        Maximum
                                                             Amount     Amount
                                                           Available   Borrowed
                                                           ---------   ---------
Comprehensive Credit Facilities:
   Agricultural Bank of China .............                $  30,895   $  27,279
   Shenzhen Development Bank ..............                   18,536      13,656
   Shenzhen Commercial Bank ...............                    6,179       6,179
   China Minsheng Bank ....................                    4,943       4,943
   Construction Bank of China .............                    3,707       3,707
                                                           ---------   ---------
         Subtotal - Credit Facilities......                $  64,260   $  55,764
                                                           =========   =========

Lines of Credit:
   Agricultural Bank of China .............                                5,176
   Shenzhen Development Bank ..............                                  776
   Shenzhen Commercial Bank ...............                                2,468
   China Minsheng Bank ....................                                4,939
                                                                       ---------
     Subtotal - Other Borrowings ..........                               13,359
                                                                       ---------
     Total Principal Outstanding ..........                            $  69,123
                                                                       =========

         Lines of credit are outside of comprehensive  credit facilities and are
therefore shown separately.

         We refinanced our short-term  debt during 2005 at annual interest rates
of 4.5% to 6.1%, payable monthly,  and for terms of six to twelve months.  These
debt arrangements are generally  guaranteed by BAK International,  Mr. Xiangqian
Li, our Director, Chairman of the Board, President, and Chief Executive Officer,
and Jilin Provincial Huaruan Technology Company Limited by Shares, a PRC company
("Huaruan Technology").  Pursuant to the refinancing, we deposited $19.4 million
of  restricted  cash,  and pledged $7.7 million of inventory and $9.8 million of
equipment and machinery as security for our  comprehensive  credit facility with
Shenzhen  Development  Bank  ("Credit  Facility").  In addition,  Mr. Li pledged
19,053,887 of his shares of our common stock to guarantee our obligations  under
the Credit Facility.  Furthermore, if at any point during the term of the Credit
Facility (i) our  liabilities  exceed 70% of our assets,  (ii) our sales revenue
declines by 10% from their levels for the prior  calendar  year or (iii) our net
asset value declines by 10% compared to the same point during the prior calendar
year, all  outstanding  debt,  including  interest and penalties due thereunder,
will  accelerate  and become  immediately  due and payable.  We are currently in
compliance with these financial tests.  The indebtedness to Shenzhen  Commercial
Bank is guaranteed by Mr. Li and by an unaffiliated third party guarantor.

         During the fourth  calendar  quarter of 2005, we refinanced  two of our
credit  facilities  totaling  $3.8  million,  and  entered  into two new  credit
facilities totaling $3.7 million with existing lenders.  The four new facilities
provide for monthly  interest  payments at fixed annual interest rates from 5.2%
to 6.1%,  with  principal  repayments at maturities  during the second  calendar
quarter of 2006.  There were no changes in assets pledged or payment  guarantees
from September 30, 2005 as a result of these new facilities.  In the future,  we
may be unable to obtain the same or  similar  terms for any  refinancing  of our
short-term  indebtedness,  or be  unable  to  renew  our  credit  facilities  on
acceptable terms. If we fail to obtain debt or equity financing to meet our debt
obligations, or fail to obtain extensions of maturity dates of these obligations
as they  become  due,  our  overall  liquidity  and  capital  resources  will be
adversely affected.




                                       28
<PAGE>

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

                                            (In thousands)
                                             Payments Due
                       ---------------------------------------------------------
                                                    Less than          More than
                         Total       1 Year    1-3 Years   3-5 Years    5 Years
                       ---------------------------------------------------------

Bank Loan, Short Term  $  39,545   $  39,545        --          --          --

Notes Payable             29,577      29,577        --          --          --

Operating Leases             215          95   $     120        --          --

Capital Leases              --          --          --          --          --
                       ---------------------------------------------------------
  Total Payments Due   $  69,337   $  69,217   $     120        --          --
                       ---------------------------------------------------------

         On September 30, 2004,  contrary to relevant PRC laws and  regulations,
the Company borrowed $1,812,316 from Changzhou Lihai Investment  Consulting Co.,
Ltd.,  an  unaffiliated  party.  The  Company  subsequently  repaid this loan on
October 11, 2004.  Management believes that the risk to the Company, due to this
loan arrangement, is very limited.

         On January 18, 2005, BAK International  completed a private offering of
8,600,433  shares  of its  common  stock for gross  offering  proceeds  of $17.0
million  or $1.98 per  share.  Investors  in the  offering  participated  in the
subsequent  exchange  transaction with CBBI, and received  8,600,433  restricted
shares of the Company's common stock, along with attendant  registration rights.
Net  proceeds  from the  financing of $15.7  million were used as follows:  $4.3
million to expand  production  facilities,  $1.8  million  to  enhance  existing
products and to research and develop new product offerings, and $9.6 million for
working capital purposes.

         On September 16, 2005, the Company sold 7,899,863  shares of its common
stock for gross  offering  proceeds  of $43.4  million or $5.50 per  share.  Net
proceeds  from  that  transaction  of  $40.3  million  will be used to  purchase
equipment and for working capital.

         On November 1, 2005,  BAK Battery  entered into a loan  agreement  with
Shenzhen  Development Bank, Longgang Branch,  under BAK Battery's  Comprehensive
Credit Facilities  Agreement with such bank entered into on April 7, 2005. Under
this loan agreement,  BAK Battery has borrowed  US$1,236,094 for working capital
purposes.  This loan matures on April 30, 2006,  and bears interest at an annual
rate of 6.138%.  Interest is payable monthly. On November 30, 2005, and December
5, 2005, BAK Battery also entered into two loan agreements with the Agricultural
Bank  of  China,  Longgang  Branch,  under  the  Comprehensive  Credit  Facility
Agreement  with such  bank  entered  into on May 20,  2005.  The loan  agreement
entered  into on  November  30  replaced,  and BAK  Battery  paid in  full,  the
outstanding  balance  under the loan  agreement  with the  Agricultural  Bank of
China,  Longgang Branch, dated May 31, 2005, which had an outstanding  principal
balance  at the time of  payment  of  US$1,977,750.  BAK  Battery  has  borrowed
US$1,977,750  under the loan  agreement  entered  into  November  30 for working
capital  purposes.  This loan matures on May 30, 2006,  and bears interest at an
annual rate of 5.22%,  with interest payable monthly.  Under the December 5 loan
agreement,  BAK Battery has borrowed  US$1,854,140 for working capital purposes.
This loan  matures  on June 5, 2006,  and bears  interest  at an annual  rate of
5.22%,  with interest payable monthly.  The December 5 loan agreement  replaces,
and BAK Battery paid in full, the  outstanding  balance under the loan agreement
with the Agricultural Bank of China,  Longgang Branch, dated June 3, 2005, which
had an  outstanding  principal  balance at the time of payment of  US$1,854,140.
Finally,  on December 1, 2005,  BAK Battery  entered into a loan  agreement with
China  Construction  Bank,  Shenzhen Branch,  under BAK Battery's  Comprehensive
Credit Facility Agreement dated August 24, 2005, with such bank. BAK Battery has
borrowed  US$2,472,188 under this loan agreement for working capital.  This loan
matures on June 1, 2006,  and bears  interest at an annual rate of 5.481%,  with
interest  payable  monthly.  On January 11, 2006, BAK Battery repaid in full its
loan from the Agricultural  Bank of China,  originally  entered into on July 29,
2005 for up to $6,178,942 and maturing  January 29, 2006. The principal  balance
at the time of repayment was $6,178,942.



                                       29
<PAGE>

         We are completing  construction of a new production facility at our BAK
Industrial  Park.  The  facility  encompasses  174,784  square  meters  with  an
estimated construction cost of $42.5 million. Upon completion,  our new facility
will give us the ability to manufacture approximately 1.5 million units per day,
which in turn may allow us to significantly  increase our revenues.  We are also
presently  undergoing  certification as a global OEM manufacturer for the mobile
phone industry. To date, most of the certification  process is complete,  and we
expect to be able to obtain certification soon..

         After  completion of  construction  of our BAK Industrial Park facility
and formal receipt of our land use right, we anticipate being able to extend the
maturity of some or all of our short-term  debt. We are also seeking  additional
capital  from  other  sources  in  order to meet our  capital  requirements  for
expansion  and  ongoing  liquidity  needs.  We  may be  unable  to  obtain  this
additional  capital or may be able to obtain  additional  capital  only on terms
unfavorable to us and our existing  stockholders.  The additional  capital could
include  debt  or  equity  financing,   which  could  be  dilutive  to  existing
stockholders.  If we are unable to secure such financing,  we may not be able to
complete all of our planned capital expansion.

Off-Balance Sheet Transactions

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

         Under generally accepted accounting principles,  these transactions may
not be recorded on the balance  sheet of China BAK,  Inc., or may be recorded in
amounts  different than the full contract or notional amount of the transaction.
Our primary off balance sheet arrangements would result from our loan guaranties
in which China BAK,  Inc.  would provide  contractual  assurance of the debt, or
guarantee  the timely  re-payment  of principal  and interest of the  guaranteed
party.  Typically,  no fees  are  received  for  this  service.  Thus  in  those
transactions,  China BAK, Inc. would have a contingent obligation related to the
guaranty of payment in the event the underlying loan is in default.

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

         We had contingent guaranty  obligations at September 30, 2005 requiring
recognition or disclosure under FIN 45. We had guaranteed the timely  re-payment
of principal  and interest of two parties to a bank.  The maximum  amount of our
exposure  for those  guaranties  at  September  30,  2005 was $5.3  million.  No
revenue,  expenses or cash flows arose from these  arrangements  at anytime.  On
January 11, 2006, we guaranteed an additional  $618,000 for one of these parties
to a bank, increasing our maximum exposure to $5.9 million on that date.

Critical Accounting Policies

         In preparing our consolidated  financial  statements in conformity with
accounting   principles   generally  accepted  in  the  United  States,  we  use
statistical analysis, estimates and projections that affect the reported amounts
and related  disclosures  and may vary from  actual  results.  We  consider  the
following  accounting  policies to be both those that are most  important to the
portrayal of our financial  condition and require the most subjective  judgment.
If  actual  results  differ   significantly  from  management's   estimates  and
projections, there could be an effect on our financial statements.

         Revenue Recognition,  Returns and Warranties. Revenue from sales of our
products is recognized upon shipment or delivery,  depending on the terms of the
sales order,  provided that persuasive  evidence of a sales arrangement  exists,
title and risk of loss have  transferred  to the  customer,  the sales amount is
fixed and determinable,  sales and value-added tax laws have been complied with,
and collection of the revenue is reasonably assured.


                                       30
<PAGE>

         We reduce  revenue based upon estimates of future credits to be granted
to  customers.  Credits are granted for reasons  such as product  returns due to
quality issues,  including product warranties claims,  volume-based  incentives,
and other  special  pricing  arrangements.  Management  utilizes its  historical
experience to estimate the allowance for product returns and warranty claims and
revises  those  estimates  periodically  based on changes in actual  experience,
market conditions and contract terms.

         In addition,  management monitors collectability of accounts receivable
primarily  through  review of the  accounts  receivable  aging.  When  facts and
circumstances   indicate  the  collection  of  specific  amounts  from  specific
customers  is at risk,  we assess the impact on amounts  recorded  for bad debts
and, if necessary, record a charge in the period such determination is made.

         Inventory Valuation  Allowances.  Inventory is valued net of allowances
for unsalable or obsolete raw  materials,  work-in-process  and finished  goods.
Allowances are determined by comparing inventory levels of individual  materials
and parts to historical usage rates, current backlog and estimated future sales,
and by analyzing the age of inventory,  in order to identify specific components
of inventory  that are judged  unlikely to be sold. In addition to this specific
identification  process,  statistical  allowances  are  calculated for remaining
inventory  based on  historical  write-offs  of  inventory  for  salability  and
obsolescence  reasons.  Inventory  is  written-off  in the  period  in which the
disposal  occurs.  Actual  future  write-offs of inventory  for  salability  and
obsolescence  reasons  may  differ  from  estimates  and  calculations  used  to
determine  valuation  allowances  due to changes in  customer  demand,  customer
negotiations, technology shifts and other factors.

Changes in Accounting Standards

         In December  2004,  the  Financial  Accounting  Standards  Board issued
Statement  of Financial  Accounting  Standards  No. 151,  "Inventory  Costs,  an
amendment of ARB No. 43, Chapter 4," ("SFAS 151") which became  effective for us
on  October 1, 2005.  This  standard  clarifies  that  abnormal  amounts of idle
facility expense, freight, handling costs and wasted material should be expensed
as incurred and not included in inventory.  In addition,  this standard requires
that the allocation of fixed production  overhead costs to inventory be based on
the normal capacity of the production  facilities.  We are currently  evaluating
the  potential  impact of this issue on our  financial  position  and results of
operations,  but management  does not believe the impact of the adoption of SFAS
151 will be material.

Exchange Rates

         The  financial  records  of  BAK  International  and  BAK  Battery  are
maintained  in  Renminbi  ("RMB" or "Yuan").  In order to prepare our  financial
statements and to state other amounts set forth in this Management's  Discussion
and Analysis ("MD&A"),  , we have translated amounts in Renminbi into amounts in
US Dollars.  The amounts of our assets and liabilities on our balance sheets are
translated  using the closing exchange rate as of the date of the balance sheet.
Revenues,  expenses,  gains and losses are translated using the average exchange
rate  prevailing  during  the  period  covered  by  such  financial  statements.
Adjustments  resulting  from  the  translation,  if  any,  are  included  in our
cumulative other comprehensive income (loss) in our stockholders' equity section
of our  balance  sheet.  All  other  amounts  stated  in this  MD&A,  that  were
originally  booked in Renminbi and translated  into US Dollars,  were translated
using  the  closing  exchange  rate  on the  date of  recognition.  Year to year
comparative amounts included in this MD&A are based on the amounts for the years
or date compared  included in the financial  statements for the years discussed.
Consequently,  the exchange rates at which the amounts in those comparisons were
computed varied from year to year.

         The  exchange  rates  used to  translate  amounts in  Renminbi  into US
Dollars in connection with the preparation of the Company's financial statements
or otherwise stated in this MD&A were as follows:

                                                               RMB per US Dollar
                                                               -----------------
                                                                 2005     2004
                                                               -----------------
Balance sheet items as of September 30                          8.0920   8.2767

Amounts included in the statement of operations,
statement of changes in stockholders' equity and
statement of cash flows for the years ended September 30        8.2413   8.26688



                                       31
<PAGE>

         Renminbi  are not  readily  convertible  into US Dollars in the foreign
exchange  markets.  The foreign  exchange rate between the RMB and the US Dollar
had been stable at approximately  RMB 8.28 to US$1.00 for the last few years. On
July 21, 2005, the Central Bank of China  announced that it would allow the Yuan
to move to a flexible exchange rate with a maximum daily variance against the US
Dollar  of 0.3%.  No  provision  has  been  made in the  accompanying  financial
statements for the change in currency  policy,  nor has any  determination  been
made,  as to the  potential  impact,  this  may  have  on the  Company's  future
operations.  As a result,  the stated exchange rates may not accurately  reflect
the amount in US Dollars into which Renminbi could be actually  converted at the
date or during the periods reflected in the foregoing table.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         This  Management's  Discussion and Analysis  ("MD&A")  contains certain
statements  that may be deemed to be  "forward-looking  statements"  within  the
meaning of the Private Securities  Litigation Reform Act of 1995. In some cases,
you can identify  forward-looking  statements by the use in those  Statements of
terminology  such  as  "may,"  "will,"  "could,"   "expect,"  "plan,"  "intend,"
"anticipate,"  "believe," "estimate," "predict,"  "potential," or "continue," or
the negative of such terms or other comparable terminology.  The forward-looking
statements included in this MD&A address activities, events or developments that
we expect or anticipate will or may occur in the future, including:

         o        our ability to maintain  our gross  profit on our  products at
                  certain levels;

         o        our ability to increase  sales in the higher profit margin OEM
                  market;

         o        our  ability to  continue  to  achieve  cost  savings  through
                  vertical integration of the manufacturing  process,  increased
                  production efficiencies and low labor costs.

         Although we believe the expectations  expressed in the  forward-looking
statements included in this MD&A are based on reasonable  assumptions within the
bounds of our  knowledge  of our  business,  a number of factors  outside of our
control could cause actual results to differ  materially from those expressed in
any of the  forward-looking  statements  included  in this MD&A.  Any one,  or a
combination, of these factors could materially affect our financial performance,
business  strategy,  business  operations,  plans,  goals and objectives.  These
factors include:

         o        costs of raw materials;

         o        costs of energy, including electricity;

         o        competitive  pressures,  including the impact on our market of
                  competitive products introduced into the marketplace,

         o        price   resistance  among  consumers  to  products  using  our
                  batteries;

         o        changes  in the  design  of  products  that  use  rechargeable
                  batteries  to  require  batteries   different  from  those  we
                  produce;

         o        changes in the laws and  regulations  applicable to us and our
                  operations;

         o        rates of taxation applicable to our Chinese operations and our
                  effective  rate of taxation in the United  States;  o cost and
                  availability of capital and debt financing;

         o        product liability claims against us;

         o        the adequacy of our products liability insurance coverage;



                                       32
<PAGE>

         o        casualty  losses to our  manufacturing  and other  facilities,
                  which are uninsured;

         o        interest rate fluctuations;

         o        demand for our products by existing and new customers;

         o        inflation;

         o        currency exchange rate fluctuations;

         o        changes in freight rates;

         o        labor costs; and

         o        other capital market, economic and geo-political conditions.

         Forward-looking  statements  that we make or that are made by others on
our behalf are based on a knowledge of our business and the environment in which
we operate,  but because of the factors listed above,  actual results may differ
from those in the  forward-looking  statements.  Consequently,  these cautionary
statements  qualify all of the  forward-looking  statements we make herein.  The
results or developments we anticipate may not be realized. Even if substantially
realized,  those  results  or  developments  may  not  result  in  the  expected
consequences  for us or affect us, our business or our operations in the ways we
expect.  We  caution  readers  not to  place  undue  reliance  on  any of  these
forward-looking  statements in this MD&A, which speak only as of their dates. We
assume no obligation to update any of the forward-looking statements.

ITEM 7.  FINANCIAL STATEMENTS
         --------------------

         The  financial  statements  required  by this  item  begin  at Page F-1
hereof.

ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE
         -----------------------------------------------------------------------

         On January  20,  2005,  we  dismissed  George  Stewart,  C.P.A.  as our
independent  registered public  accounting firm and appointed  Schwartz Levitsky
Feldman L.L.P., as our independent registered public accounting firm. There were
no disagreements or events as described in Item  304(a)(1)(iv) of Regulation S-B
in connection with the change in accountants described above.

ITEM 8A. CONTROLS AND PROCEDURES
         -----------------------

Introduction.

         "Disclosure  Controls and Procedures" are defined in Exchange Act Rules
13a-15(e)  and  15d-15(e) as the controls and  procedures  of an issuer that are
designed to ensure that  information  required to be  disclosed by the issuer in
the  reports  that it files or  submits  under  the  Exchange  Act is  recorded,
processed,  summarized,  and reported,  within the time period  specified by the
SEC's rules and forms.  Disclosure  Controls  and  Procedures  include,  without
limitation, controls and procedures designed to ensure that information required
to be disclosed  by an issuer in the reports that it files or submits  under the
Exchange  Act  is  accumulated  and  communicated  to the  issuer's  management,
including its principle executive and principal financial officers to all timely
decisions regarding disclosure.

         "Internal Control Over Financial  Reporting" is defined in Exchange Act
Rules 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision
of, an issuer's principal executive and principal financial officers, or persons
performing  similar  functions,  and effected by an issuer's board of directors,
management,  and other personnel,  to provide reasonable assurance regarding the
reliability of financial  reporting and the preparation of financial  statements
for  external  purposes  in  accordance  with  generally   accepted   accounting
principles and includes  those  policies and procedures  that (1) pertain to the
maintenance of records that in reasonable  detail  accurately and fairly reflect
the transactions and disposition of an issuer: (2) provide reasonable  assurance
that  transactions are recorded as necessary to permit  preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and  expenditures  of the issuer are being made only in accordance with
authorizations  of  management  and  directors  of the  issuer;  and (3) provide
reasonable  assurance  regarding  prevention or timely detection of unauthorized
acquisition,  use,  or  disposition  of the  issuer's  assets  that could have a
material adverse effect on the financial statements.



                                       33
<PAGE>

         We have endeavored to design our Disclosure Controls and Procedures and
Internal Controls Over Financial Reporting to provide reasonable assurances that
their objectives will be met. A control system,  no matter how well designed and
operated,  can provide only  reasonable,  but not absolute,  assurance  that its
objectives will be met. All control systems are subject to inherent limitations,
such as resource constraints,  the possibility of human error, lack of knowledge
or  awareness,  and  the  possibility  of  intentional  circumvention  of  these
controls.  Furthermore, the design of any control system is based, in part, upon
assumptions  about  the  likelihood  of future  events,  which  assumptions  may
ultimately prove to be incorrect.  As a result, we cannot assure you our control
system will detect every error or instance of fraudulent  conduct,  including an
error or  instance of  fraudulent  conduct  which could have a material  adverse
impact on our operations or results.

         Based on the comments from the  Securities  and Exchange  Commission in
conjunction  with the  Registration  Statement on Form SB-2 filed by the Company
with the  Securities  and Exchange  Commission  on January 20, 2005,  as amended
(file no.  122209),  the Company  restated the  consolidated  statements of cash
flows for the year ended  September  30,  2004 to reflect a decrease in net cash
provided from  operating  activities of $120,815  (approximately  57%). Net cash
provided  from  investing  activities  and  net  cash  provided  from  financing
activities  decreased by $8 and also  increased by $120,918,  respectively.  The
Company also extended or modified  certain notes to the  consolidated  financial
statements  to reflect  the effects of  exchange  rate  changes on cash and cash
equivalents,  a decrease of $95. The consolidated  balance sheets,  consolidated
statements of operations,  and consolidated  statements of stockholders'  equity
remained  unchanged,  except  for minor  changes in  wordings.  Based on further
comments from the Securities and Exchange  Commission,  the Company  amended the
consolidated balance sheet as of September 30, 2004, the consolidated statements
of  operations  for the year  ended  September  30,  2004  and the  consolidated
statements of changes in  stockholders'  equity for the year ended September 30,
2004 and  extended  or  modified  certain  notes to the  consolidated  financial
statements to retroactively reflect that 1,152,458 shares of common stock of the
Company  were  outstanding  immediately  prior  to the  share  exchange  and the
resulting recapitalization. The effect of the restatement was to decrease common
stock  outstanding  as of the  earliest  date  presented  with  a  corresponding
increase to additional  paid in capital.  The restatement had no effect on total
stockholders'  equity,  net  income  or  earnings  per  share  in the  financial
statements.   Based  on  further  comments  from  the  Securities  and  Exchange
Commission,  the Company amended the  consolidated  statements of operations and
extended or modified certain notes to the consolidated  financial  statements to
reclassify  depreciation  and  amortization  expense  from a  separate  item  in
operating  expenses  into cost of goods sold,  selling  expenses and general and
administrative  expenses.  The effect of the  restatement  was to decrease gross
profit for the fiscal year ended September 30, 2004 by $1,635,971 (approximately
11%). The restatement had no effect on operating  income or net income in any of
the years.  For further details with respect to each of these  restatements  see
Note 21  "Restatement  to  Consolidated  Financial  Statements" to the financial
statements found at Item 7.

We  have  discussed  the  restatements  described  above  with  our  independent
registered public accountants.  Our management is implementing the following set
of changes:

         (1) Engaging outside consultants with technical  accounting  expertise,
         as  needed,   to  ensure  that   accounting   personnel  with  adequate
         experience,  skills and knowledge  are directly  involved in the review
         and accounting for our complex,  non-recurring  transactions  and those
         items for which we have restated our financial  statements as described
         above;

         (2) Additional training of our accounting staff;

         (3)   Involving   both  internal   accounting   personnel  and  outside
         consultants with technical  accounting  expertise,  as needed, early in
         the  evaluation of the  application  of generally  accepted  accounting
         principles in complex, non-recurring transactions;

         (4) Documenting to standards established by senior accounting personnel
         and the principal  accounting officer the review,  analysis and related
         conclusions  with respect to complex,  non-recurring  transactions  and
         those items for which we have  restated  our  financial  statements  as
         described above; and

         (5) Requiring senior accounting  personnel and the outside  consultants
         with technical  accounting  expertise to review complex,  non-recurring
         transactions to evaluate and approve the accounting  treatment for such
         transactions  and those items for which we have  restated our financial
         statements as described above.

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

We have also  implemented  policies and procedures to assure adequate and timely
involvement of outside accounting consultants,  as needed, to obtain guidance as
to the  application  of generally  accepted  accounting  principles  to complex,
non-recurring  transactions.  In the  preparation  of this Annual Report on Form
10-KSB,  we  utilized   consultants  with  technical   accounting  expertise  to
supplement our review of the accounting of complex,  non-recurring transactions,
including our  restatement.  The Company's  continued use of the same accounting
consultants  over the  period  commencing  October  2005 has  resulted  in these
consultants  having a growing  familiarity  with the  Company,  its business and
personnel.

Changes in Internal Control Over Financial Reporting.

         During the fiscal year ended September 30, 2005,  there were no changes
in our Internal Control Over Financial  Reporting that has materially  affected,
or is  reasonably  likely  to  materially  affect,  our  Internal  Control  Over
Financial Reporting other than the changes which are described above.

                                       34
<PAGE>

Evaluation of Disclosure Controls and Procedures.

         The Company's management, with the participation of our chief executive
officer and chief financial  officer,  have evaluated the  effectiveness  of our
Disclosure  Controls and Procedures as of September 30, 2005. As a result of the
restatements  described in the preceeding paragraphs our chief executive officer
and chief  financial  officer have concluded  that our  Disclosure  Controls and
Procedures  were not effective to ensure that material  information  relating to
the Company is made known to our chief  executive  officer  and chief  financial
officer by others  within the Company,  particularly  during the period in which
this report was being prepared.

ITEM 8B. OTHER INFORMATION
         -----------------

         On  August  19,  2005,  BAK  Battery  entered  into a  credit  facility
agreement with Shenzhen Branch,  China Construction Bank  ("Construction  Bank")
pursuant  to which BAK  Battery  may borrow up to US$12.3  million  for  working
capital purposes (the "Construction Bank Credit Agreement").  On August 26, 2005
BAK Battery drew US$3.7 million under the Credit Agreement,  bearing interest at
an annual rate of 5.4812% and maturing  February  26, 2006.  Interest is payable
monthly.  Xiangqian  Li, our Chairman and CEO has  guaranteed  our  indebtedness
under the Construction Bank Credit Agreement.

         On December 1, 2005,  BAK Battery  drew an  additional  US$2.4  million
under Construction Bank Credit Agreement for working capital.  This loan matures
on June 1, 2006, and bears  interest at an annual rate of 5.481%,  with interest
payable monthly.

         The  following  events  constitute  a breach of the  Construction  Bank
Credit  Agreement:  (a) failure to pay the debt in time;  (b)  deterioration  of
business or financial status,  inability to pay the mature debt,  involvement in
major  litigation,  arbitration  or other  legal  dispute,  which is  deemed  by
Construction  Bank to likely  affect or impair or is affecting or impairing  its
rights under the  Construction  Bank Credit  Agreement;  (c)  alteration  of our
shareholder or shareholding ratio which Construction Bank deems to likely affect
or impair its interests and rights under the Construction Bank Credit Agreement;
(d)  incurring  other debt  obligations  that are likely to affect or is already
affecting our ability to perform our  obligations  under the  Construction  Bank
Credit  Agreement;  (e) failure to repay other mature debt owed to  Construction
Bank  or its  branches;  (f)  entrance  into a  lease,  contractual  management,
transformation of stock system,  co-management,  merger, acquisition,  division,
joint venture or other  activity to change our  management  method or management
system  before the  settlement  of all debt that  Construction  Bank deems to be
detrimental  to  the  interests  and  rights  of  Construction  Bank  under  the
Construction Bank Credit Agreement; (g) evasion or avoidance of the debt owed to
Construction Bank through a related transaction; or (h) obtaining financing from
Construction  Bank by means of discount or pledge of receivable  documents  that
have no actual  transaction by using false contracts  between us and our related
companies.

         In the event of a breach of the  Construction  Bank  Credit  Agreement,
Construction Bank make take any of the following actions: (a) adjust,  cancel or
terminate our use of the  comprehensive  credit  facility or each type of credit
facility under the Construction Bank Credit Agreement,  or adjust the valid term
of the credit facility;  (b) declare the debt under the Construction Bank Credit
Agreement become mature immediately and demand payment of outstanding principal,
interest and expenses of all debt under the Construction  Bank Credit Agreement;
(c) put up public  notice of our breach of  contract  and list us as a high-risk
company for Construction Bank or other authorities;  (d) transfer away all funds
in any currency  deposited  with  Construction  Bank; (e) demand that we provide
other  security  as  required  by  Construction  Bank for all  debts  under  the
Construction  Bank  Credit  Agreement;  (f)  enforce  the  security  right;  (g)
terminate  the  Construction  Bank  Credit  Agreement  unilaterally;  (h) demand
compensation  for any loss incurred by  Construction  Bank; (i) demand breach of
contract compensation equivalent to a certain percentage of the remaining unpaid
principal;  (j) impose compound  interest for the overdue interest in accordance
with any loan agreement  before the individual  debt becomes  mature,  or impose
interest and compound  interest for the overdue  principal  and interest for the
period from the due date to the  settlement  of all  principal  and  interest in
accordance  with any loan agreement  before the individual  debt becomes mature;
(k) impose interest and compound  interest for the part of the loan that is used
by us for a purpose  other than  agreed  upon by the parties for the period from
the date of  inappropriate  use of such  loan to the date of  settlement  of all
principal and debt; and (l) take other means as appropriate.

         On November 1, 2005,  BAK Battery  entered into a loan  agreement  with
Shenzhen  Development  Bank,  Longgang Branch  ("Development  Bank"),  under BAK
Battery's  Comprehensive Credit Facilities Agreement with such bank entered into


                                       35
<PAGE>

on April 7,  2005  (the  "Development  Bank Loan  Agreement").  Under  this loan
agreement,  BAK Battery has borrowed  approximately  US$1.2  million for working
capital purposes.  This loan matures on April 30, 2006, and bears interest at an
annual rate of 6.138%. Interest is payable monthly.

         The  following  events  will  constitute  a breach of  contract  of the
Development Bank Loan Agreement: (a) BAK Battery terminates its operations or is
stopped  from  operating;  (b) BAK Battery  provides  untrue  documents or hides
important   financial   information  about  its  operations;   (c)  BAK  Battery
intentionally  evades bank debts by using  related party  transactions  or other
means; (d) BAK Battery uses loan proceeds without Development Bank's consent for
purposes  other  than as stated in the  Development  Bank Loan  Agreement  or as
otherwise agreed; or (e) the occurrence of any other event that endangers or may
endanger  the  safety  of the  loan  provided  by  Development  Bank  under  the
Development Bank Loan Agreement.

         In the  event of a  breach  of the  Development  Bank  Loan  Agreement,
Development Bank may take the following  actions:  (a) terminate the Development
Bank  Loan  Agreement;  (b)  suspend  any  loans not  previously  provided;  (c)
accelerate payment of outstanding loan principal and interest; (d) imposition of
punitive interest;  and (e) require  reimbursement of fees and expenses incurred
by  Development  Bank as a result of the breach,  including  attorneys  fees and
court costs.

         On September 22nd and 27th,  2005, BAK Battery  borrowed US$2.5 million
and US$1.1  million,  respectively,  under two  separate  loan  agreements  with
Shenzhen Longgang Branch, Agricultural Bank of China ("Agricultural Bank") under
the Comprehensive  Credit Facility  Agreement with such bank entered into on May
20, 2005. Principal is payable March 22, 2006 and March 27, 2006,  respectively.
Each borrowing bears interest at an annual rate of 5.22% and interest is payable
on the 20th of each month.

         On November  30, 2005,  and December 5, 2005,  BAK Battery also entered
into two  additional  loan  agreements  with the  Agricultural  Bank,  under the
Comprehensive  Credit Facility  Agreement with such bank entered into on May 20,
2005. The loan agreement  entered into on November 30 replaced,  and BAK Battery
paid in  full,  the  outstanding  balance  under  the  loan  agreement  with the
Agricultural  Bank,  dated  May 31,  2005,  which had an  outstanding  principal
balance at the time of payment of approximately  US$1.9 million. BAK Battery has
borrowed  approximately  US$1.9  million under the loan  agreement  entered into
November 30 for working capital purposes. This loan matures on May 30, 2006, and
bears interest at an annual rate of 5.22%, with interest payable monthly.  Under
the December 5 loan  agreement,  BAK Battery has borrowed  approximately  US$1.8
million for working  capital  purposes.  This loan matures on June 5, 2006,  and
bears interest at an annual rate of 5.22%,  with interest payable  monthly.  The
December  5  loan  agreement  replaces,  and  BAK  Battery  paid  in  full,  the
outstanding  balance under the loan agreement with the Agricultural  Bank, dated
June 3, 2005, which had an outstanding  principal balance at the time of payment
of approximately US$1.8 million.

         Under the loan  agreements  with  Agricultural  Bank, in the event of a
breach  of any  such  loan  agreement,  Agricultural  Bank  may  take any of the
following actions: (a) suspend any loans not previously provided; (b) accelerate
payment of outstanding  loan principal and interest;  (c) imposition of punitive
interest; (d) require reimbursement of fees and expenses incurred by Development
Bank as a result of the breach, including attorneys fees and court costs.

PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
         ------------------------------------------------------------

         The following table provides  information about our executive officers,
directors and director  nominees and their  respective  ages and positions as of
December 31, 2005.  The directors  listed below will serve until our next annual
or special meeting of stockholders at which directors are elected:
         NAME          AGE                     POSITION HELD
         ----          ---                     -------------

     Xiangqian Li      37    Director, Chairman of the Board, President and
                             Chief Executive Officer




                                       36
<PAGE>

     Yongbin Han       36    Chief Financial Officer, Secretary and Treasurer

     Huanyu Mao        54    Chief Operating Officer and Chief Technical Officer

         Xiangqian  Li  has  served  as our  Director,  Chairman  of the  Board,
President and Chief  Executive  Officer since January 20, 2005.  Mr. Li has been
Chairman of Board of Directors  and General  Manager of BAK Battery  since April
2001 and has also served as BAK Battery's  general  manager since December 2003.
Previously,  Mr. Li served as (i) Chairman of the Board of Directors and General
Manager of Shenzhen BAK Li-ion  Battery Co., Ltd. from December 2000 until March
2001;  (ii) as Chairman of the Board of Directors  and General  Manager of Jilin
Province Huaruan  Technology  Company Limited by Stocks  ("Huaruan  Technology")
from March 2001 until June 2001; and (iii) as Chairman of the Board of Directors
of Huaruan  Technology  from January 2001 until June 2003.  Prior to 2001 Mr. Li
was self employed.  Mr. Li graduated from Lanzhou Railway  Institute and holds a
Bachelors  degree in gas  engineering.  He is pursuing a  Doctorate  of quantity
economics from Jilin University.

         Yongbin Han has served as our Chief  Financial  Officer  and  Secretary
since January 20, 2005.  Mr. Han is a Chinese  certified  public  accountant and
certified  tax agent.  Mr. Han has been  Deputy  General  Manager of BAK Battery
since  April 2003.  In that  capacity  he  oversees  the finance and  accounting
department.  Previously, Mr. Han served as (i) Deputy General Manager of Huaruan
Technology  from  January 2002 until April 2003 and (ii)  Department  Manager of
Zhonghongxin  Jianyuan  Accounting  Firm from July 1995 until July 2001. Mr. Han
graduated from Changchun Tax Institute with a Bachelors degree in accounting.

         Huanyu Mao has served as our Chief Technical  Officer since January 20,
2005. Dr. Mao has been Chief Scientist of BAK Battery since September 2004. From
1997 until  September  2004 Dr. Mao served as Chief  Engineer of Tianjin  Lishen
Company.  Dr. Mao received a Doctorate degree in  electrochemistry in conducting
polymers from Memorial University of Newfoundland, Canada.

         Board Composition and Committees

         The board of directors is currently  composed of one member,  Xiangqian
Li. All Board action  requires  the  approval of a majority of the  directors in
attendance  at a meeting at which a quorum is  present.  We intend to expand our
board to include  three  "independent"  directors in the near  future.  Upon the
addition of  independent  directors to our board of directors,  we will purchase
officers and directors liability  insurance for those directors,  as well as Mr.
Li.

         We currently do not have standing  audit,  nominating  or  compensation
committees.   We  intend,  however,  to  establish  an  audit  committee  and  a
compensation  committee  of the board of directors  as soon as  practicable.  We
envision that the audit  committee will be primarily  responsible  for reviewing
the services  performed by our independent  auditors,  evaluating our accounting
policies and evaluating and  administering  our system of internal controls over
financial reporting.  The compensation  committee will be primarily  responsible
for reviewing and approving our salary and benefits  policies  (including  stock
options), including compensation of executive officers.

         Director Compensation

         At present we do not pay our  directors a fee for  attending  scheduled
and special  meetings of our board of  directors.  We intend to  reimburse  each
director for reasonable travel expenses related to such director's attendance at
board of directors and committee  meetings.  As noted above, we intend to expand
our  board  to  include  "independent"  directors.  It is  anticipated  that the
appointment  of  independent  members of our board  will  require us to pay fees
comparable to those paid by other public companies in our peer group.

         Indebtedness of Directors and Executive Officers

         None of our  directors or officers or their  respective  associates  or
affiliates is indebted to us.



                                       37
<PAGE>
<TABLE>
<CAPTION>

         Involvement in Certain Legal Proceedings

         In the normal course of business,  various  claims are made against us.
At this time,  in the  opinion of  management,  there are no pending  claims the
outcome  of which are  expected  to result in a material  adverse  effect on our
consolidated financial position or results of operations.

         Family Relationships

         There are no family relationships among our directors or officers.

         Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the  Securities  Exchange Act of 1934 (the  "Exchange
Act") requires our directors, executive officers and holders of more than 10% of
our Common Stock to file with the  Commission  initial  reports of ownership and
reports of changes in ownership of our Common Stock and other equity securities.
Officers,  directors  and  greater  than 10%  stockholders  are  required by the
Commission  regulations  to furnish us with copies of all Section  16(a) reports
they  file.  To our  knowledge,  based  solely on a review of the copies of such
reports and written  representations  that no other  reports were  required,  we
believe that all filing requirements  applicable to our officers,  directors and
greater  than 10%  stockholders  were  satisfied  during the  fiscal  year ended
September  30, 2005,  with the  exception of a Form 4 filed on behalf of Yongbin
Han and a Form 4 filed on behalf of Dr. Huanyu Mao.

ITEM 10. EXECUTIVE COMPENSATION
         ----------------------

         The  following   Summary   Compensation   Table  sets  forth  all  cash
compensation  paid to our chief executive  officer for services  rendered in all
capacities to us during the noted periods.  No executive officers received total
annual salary and bonus compensation in excess of $100,000.

                           Summary Compensation Table


   Name and                                       Restricted   Securities
   Principal                                        Stock      Underlying     All Other
   Position             Year    Salary    Bonus     Awards       Options    Compensation
   ---------            ----    ------    -----   ----------   ----------   ------------
<S>                     <C>     <C>       <C>     <C>          <C>          <C>
Xiangqian Li,            2005   $8,736      -0-       N/A           N/A      $45,730(1)
Chairmanof the Board,    2004   $8,709      -0-       N/A           N/A          N/A
President, and Chief     2003   $8,699      -0-       N/A           N/A          N/A
Executive Officer
</TABLE>

(1) Includes $45,730 for use of a company owned vehicle.


         Mr.  Timothy P. Halter served as our Chief  Executive  Officer  without
compensation  for nineteen days at the beginning of fiscal 2005, from January 1,
2005 to January 19, 2005.

Stock Option Plan

         In May 2005, our board of directors adopted the China BAK Battery, Inc.
2005 stock option plan. We plan to submit the plan to a stockholder  vote within
12 months of its  adoption.  The plan will be void if it is not  approved by our
stockholders.

         Our 2005 stock  option plan  provides  for the grant of  "nonqualified"
stock options. These nonqualified stock options may be granted to our employees,
non-employee  directors  and  advisors and those of any of our  subsidiaries  or
affiliates. However, advisors are only eligible to receive awards if they render
bona fide services for us or any of our subsidiaries or affiliates. The exercise
price of options granted pursuant to the plan must be at least equal to the fair
market value of our common stock on the date of the grant.  The plan  authorizes
the issuance of up to 4,000,000  shares of our common stock.  We granted options
to purchase  2,000,000  shares to  approximately  55  individuals at fair market
value on May 16, 2005,  including  options to purchase 200,000 shares granted to
each of Yongbin Han, our Chief Financial Officer,  Secretary and Treasurer,  and
Huanyu Mao, our Chief  Operating  Officer and Chief Technical  Officer.  We have
2,000,000 shares of our common stock remaining available for issuance under this
plan.



                                       38
<PAGE>
<TABLE>
<CAPTION>

         The plan will  generally  terminate on May 16, 2055.  Generally,  stock
options  granted under this plan may not be transferred in any manner other than
by will or by the laws of descent and  distribution  and may be exercised during
the lifetime of the optionee only by the optionee.  However,  exceptions  can be
made to this  restriction.  Options  granted  under our 2005 stock  option  plan
expire  immediately upon the termination of the optionee's service to us or to a
subsidiary  or  affiliate  of ours for  misconduct,  thirty-one  days  following
termination if the  termination  is for reasons other than death,  disability or
cause, or 12 months following  termination if the termination is due to death or
disability.  Upon a change in control,  all outstanding  stock options under our
2005 stock option plan either may be assumed or substituted for by the successor
entity. If the successor entity determines not to assume or substitute for these
stock options, the vesting provisions of such stock options will be accelerated,
and the  stock  options  will  terminate  upon  the  change  of  control  if not
previously exercised.

Employment, Change of Control and Severance Arrangements

BAK Battery has an employment  agreement with Mr. Li for a term extending  until
August  3,  2006.  The  Company  pays Mr.  Li a salary  in  accordance  with the
Company's principle's; his annual salary for fiscal year 2005 was US$8,736. This
employment  agreement also provides that we will pay social  insurance  benefits
for Mr. Li, which we also provide to our other management  employees.  We or Mr.
Li may  terminate  this  employment  agreement  upon thirty  days prior  written
notice.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         --------------------------------------------------------------

         The  following  table sets forth,  as of  November  30,  2005,  certain
information with respect to the beneficial  ownership of our common stock by (i)
each  director  and officer of CBBI,  (ii) each  person  known to CBBI to be the
beneficial  owner of five  percent or more of the  outstanding  shares of common
stock of CBBI,  and (iii) all directors and officers of CBBI as a group.  Unless
otherwise indicated,  the person or entity listed in the table is the beneficial
owner of, and has sole voting and  investment  power with respect to, the shares
indicated.

                                          Amount and Nature of Beneficial Ownership(1)
                                          --------------------------------------------


                                                Number                Percent of
Name of Beneficial Owner                     of Shares(2)           Voting Stock(3)
------------------------                     ------------           ---------------
<S>                                          <C>                    <C>
Xiangqian Li                                 21,233,437(4)               43.4%
BAK Industrial park, No. 1 BAK Street
Kuichong Town
Longgang District, Shenzhen
People's Republic of China

The Pinnacle Fund, L.P.                       2,612,751                   5.3%
4965 Preston Park Blvd., Suite 240
Plano, TX 75093

Huanyu Mao                                      249,805                   *
BAK Industrial park, No. 1 BAK Street
Kuichong Town
Longgang District, Shenzhen
People's Republic of China

Yongbin Han                                     312,256                   *
BAK Industrial park, No. 1 BAK Street
Kuichong Town
Longgang District, Shenzhen
People's Republic of China

Directors and executive officers
as a group (3 persons)                       21,795,498                  44.6%
</TABLE>
--------------------
*Denotes less than 1% of the outstanding shares of common stock.


(1) On  November  30,  2005,  there  were  48,878,396  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



                                       39
<PAGE>
<TABLE>
<CAPTION>

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 On November
30, 2005, (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
48,878,396  shares in the aggregate of common stock  outstanding  on On November
30, 2005,  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 convertible securities.

(4) Mr.  Li is a party to an  Escrow  Agreement  pursuant  to which he agreed to
place  2,179,550  shares of his common  stock into escrow for the benefit of the
selling  stockholders  in the  event  we fail to  satisfy  certain  "performance
thresholds",  as defined in the Escrow  Agreement,  which  Escrow  Agreement  is
incorporated by reference as a material exhibit to the registration statement of
which this  prospectus is a part and is on file with the SEC.  CBBI's 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 will be released to Mr. Li. Mr. Li is also a party to a Lock-up
Agreement  pursuant  to which he has  agreed,  except for  distributions  of his
shares of common stock required under the Escrow Agreement,  not to transfer his
common stock for a period commencing January 20, 2005 and ending 12 months after
the date our common stock is listed on either the Nasdaq Stock Market or another
national  stock  exchange  or  quotation   medium.   The  Lock-up  Agreement  is
incorporated by reference as a material exhibit to the registration statement of
which this  prospectus  is a part and is on file with the SEC.  Mr. Li is also a
party to a Pledge Agreement pursuant to which he has agreed to pledge 19,053,887
shares of his common stock to Shenzhen  Development  Bank  (Longgang  Branch) as
security for a comprehensive credit facility of the Company.

(5) Barry Kitt has sole voting and investment  control over the securities  held
by The Pinnacle Fund, L.P.

Equity Compensation Plan Information

         The  following   table  provides   information   about  the  securities
authorized for issuance under our equity  compensation plans. In accordance with
the rules of the  Commission,  the  information  in the table is presented as of
September 30, 2005, the end of our most recently completed fiscal year.

                                                                                      Number of securities
                                                                                   remaining available for
                        Number of securities                                    future issuance under equity
                       be issued upon exercise    Weighted-average exercise           compensation plans
                       of outstanding options,   price of outstanding options       (excluding securities
Plan category            warrants and rights         warrants and rights           reflected in column (a))
-------------          -----------------------   ----------------------------   -----------------------------
                                (a)                         (b)                             (c)
<S>                    <C>                       <C>                            <C>
Equity compensation
   plans approved by
   security holders               --                         --                              --
Equity compensation
   plans not approved
   by security holders       2,000,000                      6.25                         2,000,000
Total                        2,000,000                      6.25                         2,000,000
</TABLE>



                                       40
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         ----------------------------------------------

         BAK Battery has several  outstanding  short term bank notes  payable to
(i) Agricultural Bank of China (Longgang Branch),  (ii) Shenzhen Commercial Bank
(Shuibei  Branch),  (iii) Shenzhen  Development Bank (Longgang  Branch) and (iv)
China Minsheng Bank  (Binhai/Shenzhen  Branches)  respectively,  the proceeds of
which were used primarily to fund the operations of our  manufacturing  facility
located at the BAK Industrial Park and for general working capital requirements.
At September 30, 2005, we had aggregate amounts due and payable under these debt
arrangements of $69.12  million.  The debt  arrangements  bear interest at rates
ranging from 5.022% to 6.138% and have maturity dates ranging from six to twelve
months.  This  indebtedness  is generally  guaranteed by BAK  International,  by
Xiangqian Li, our director, Chairman of the Board, President and Chief Executive
Officer, and by Jilin Provincial Huaruan Technology Company Limited by Shares, a
PRC company ("Huaruan  Technology").  Mr. Li has also pledged  19,053,887 of his
21,233,437 shares of our common stock to secure certain of our indebtedness. Mr.
Li  is  the  controlling   shareholder  and  an  executive  officer  of  Huaruan
Technology. The indebtedness to Shenzhen Commercial Bank is guaranteed by Mr. Li
and by an unaffiliated third party guarantor. None of Mr. Li, Huaruan Technology
or  the  third  party   guarantor   received  or  is  entitled  to  receive  any
consideration for the above referenced guarantees,  and we are not independently
obligated  to  indemnify  any of those  guarantors  for any amounts paid by them
pursuant to any guarantee.

         On October 18, 2003, we acquired intangible assets,  including a patent
and other  patent  rights,  from Huaruan  Technology,  an entity  controlled  by
Xiangqian Li, our President and Chief Executive Officer. The total consideration
paid to Huaruan Technology was $3.86 million.  The consideration paid to Huaruan
Technology was recorded at fair market value.

         On September 30, 2004,  BAK Battery  entered into a Financial  Advisory
Agreement with HFG  International,  Ltd., a Hong Kong  corporation,  pursuant to
which HFG  International  agreed to provide BAK Battery with  consulting help in
implementing an  organizational  structure that would  facilitate  accessing the
capital markets of the United States. In consideration  for these services,  HFG
International was paid a fee of $400,000 in conjunction with the consummation of
BAK  Battery's  private  placement on January 20, 2005.  Timothy P. Halter,  our
former Chief Executive  Officer,  is the principal  shareholder and an executive
officer of HFG International.  We believe the agreement was on terms at least as
favorable  to BAK  Battery  as those that  could  have been  negotiated  with an
unaffiliated party providing similar services.

         On June 10,  2004,  we  issued  99,858  shares of our $ 0.001 par value
common stock to Harry Miller,  our former President and Chief Executive Officer,
in  full  settlement  of a debt in the  amount  of  $49,929  that we owed to Mr.
Miller. The price of the transaction was $0.50 per share. The last reported sale
price for shares of our common stock prior to that issuance was $0.50 per share.

ITEM 13. EXHIBITS
         ---------

(a)      The following documents are filed as part of this Annual Report on Form
         10-KSB:

         1.       Financial  Statements:  The financial statements filed as part
                  of  this  report  are  listed  in  the  "Index  to   Financial
                  Statements" on Page F-1 hereof.

         2.       Exhibits required to be filed by Item 601 of Regulation S-B:

         3.1      Articles of Incorporation of the Registrant (6)
         3.2      Articles of Amendment (6)
         3.3      Amended and Restated Bylaws (6)
         3.4      Bylaws (1)
         10.1     Securities   and   Exchange   Agreement   by  and   among  BAK
                  International,  Ltd., Medina Coffee, Inc. and the stockholders
                  of BAK International, Ltd. dated as of January 20, 2005. (1)
         10.2     Escrow Agreement by and among Medina Coffee, Inc., the selling
                  stockholders,    Xiangqian   Li,   and   Securities   Transfer
                  Corporation dated as of January 20, 2005. (2)
         10.3     Lock-up  Agreement  by and between  Medina  Coffee,  Inc.  and
                  Xiangqian Li dated as of January 20, 2005. (6)
         10.4*    Form of Subscription Agreement.
         10.5     Intentionally omitted.



                                       41
<PAGE>

         10.6     Intentionally omitted.
         10.7     Intentionally omitted.
         10.8     Intentionally omitted.
         10.9     Intentionally omitted.
         10.10    Summary of Comprehensive  Credit Facility Agreement of Maximum
                  Amount by and between  Shenzhen  BAK  Battery  Co.,  Ltd.  and
                  Longgang  Branch,  Agricultural  Bank of China dated as of May
                  20, 2005. (2)
         10.11    Summary of Guaranty  Contract of Maximum Amount by and between
                  BAK International, Ltd. and Longgang Branch, Agricultural Bank
                  of China dated as of May 20, 2005. (2)
         10.12    Guaranty  Contract of Maximum Amount by and between  Xiangqian
                  Li and Longgang Branch, Agricultural Bank of China dated as of
                  May 20, 2005. (2)
         10.13    Summary of Loan Agreement by and between  Shenzhen BAK Battery
                  Co.,  Ltd. and  Longgang  Branch,  Agricultural  Bank of China
                  dated March 21, 2005. (2)
         10.14    Summary of Loan Agreement by and between  Shenzhen BAK Battery
                  Co.,  Ltd. and  Longgang  Branch,  Agricultural  Bank of China
                  dated March 24, 2005. (2)
         10.15    Summary of Loan Agreement by and between  Shenzhen BAK Battery
                  Co.,  Ltd. and  Longgang  Branch,  Agricultural  Bank of China
                  dated March 25, 2005. (2)
         10.16    Summary of Loan Agreement by and between  Shenzhen BAK Battery
                  Co.,  Ltd. and  Longgang  Branch,  Agricultural  Bank of China
                  dated November 30, 2005. (3)
         10.17    Summary of Loan Agreement by and between  Shenzhen BAK Battery
                  Co.,  Ltd. and  Longgang  Branch,  Agricultural  Bank of China
                  dated December 5, 2005. (3)
         10.18    Summary of  Comprehensive  Credit  Facility  Agreement  by and
                  between  Shenzhen BAK Battery Co.,  Ltd. and Longgang  Branch,
                  Shenzhen Development Bank dated April 7, 2005. (2)
         10.19    Guaranty  Contract  of Maximum  Amount  Pledge by and  between
                  Xiangqian Li and Longgang  Branch,  Shenzhen  Development Bank
                  dated April 28, 2005. (2)
         10.20    Summary of Guaranty  Contract of Maximum  Amount Pledge by and
                  between  Shenzhen BAK Battery Co.,  Ltd. and Longgang  Branch,
                  Shenzhen Development Bank dated April 28, 2005. (2)
         10.21    Summary of Guaranty  Contract of Maximum  Amount Pledge by and
                  between  Shenzhen BAK Battery Co.,  Ltd. and Longgang  Branch,
                  Shenzhen Development Bank dated April 11, 2005. (2)
         10.22    Maximum Amount Guarantee  Contract of Maximum Amount Pledge by
                  and  between  Xiangqian  Li  and  Longgang  Branch,   Shenzhen
                  Development Bank dated April 28, 2005. (2)
         10.23    Summary of Loan Agreement by and between  Shenzhen BAK Battery
                  Co., Ltd. and Longgang Branch, Shenzhen Development Bank dated
                  April 28, 2005. (2)
         10.24    Summary of Loan Agreement by and between  Shenzhen BAK Battery
                  Co., Ltd. and Longgang Branch, Shenzhen Development Bank dated
                  May 18, 2005. (2)
         10.25    Summary of Loan Agreement by and between  Shenzhen BAK Battery
                  Co., Ltd. and Longgang Branch, Shenzhen Development Bank dated
                  May 27, 2005. (2)
         10.26    Summary of Loan Agreement by and between  Shenzhen BAK Battery
                  Co., Ltd. and Longgang Branch, Shenzhen Development Bank dated
                  June 3, 2005. (2)
         10.27    Summary of Loan Agreement by and between  Shenzhen BAK Battery
                  Co., Ltd. and Longgang Branch, Shenzhen Development Bank dated
                  May 18, 2005. (2)
         10.28    Summary of Guaranty Contract of Pledge by and between Shenzhen
                  BAK  Battery  Co.,   Ltd.  and   Longgang   Branch,   Shenzhen
                  Development Bank dated May 15, 2005. (2)
         10.29    Summary of Comprehensive  Credit Facility Agreement of Maximum
                  Amount  between  Shenzhen BAK Battery  Co.,  Ltd. and Shenzhen
                  Branch, China Minsheng Bank dated March 17, 2005. (2)
         10.30    Guaranty  Contract of Maximum Amount between Jilin  Provincial
                  Huaruan  Technology  Company  Limited by Shares  and  Shenzhen
                  Branch, China Minsheng Bank dated March 5, 2005. (2)

         10.31    Summary of Loan  Agreement  between  Shenzhen BAK Battery Co.,
                  Ltd. and Shenzhen  Branch,  China Minsheng Bank dated March 7,
                  2005. (2)



                                       42
<PAGE>

         10.32    Summary of Comprehensive  Credit Facility Agreement of Maximum
                  Amount  between  Shenzhen  BAK Battery  Co.,  Ltd. and Shuibei
                  Branch, Shenzhen Commercial Bank dated April 22, 2005. (2)
         10.33    Individual   Guaranty   Contract  of  Maximum  Amount  between
                  Xiangqian  Li and Shuibei  Branch,  Shenzhen  Commercial  Bank
                  dated April 20, 2005. (3)
         10.34    Summary  of  Guaranty   Contract  of  Maximum  Amount  between
                  Shenzhen Tongli Hi-tech Co., Ltd. and Shuibei Branch, Shenzhen
                  Commercial Bank dated April 21, 2005. (2)
         10.35    Summary of Comprehensive  Credit Facility Agreement of Maximum
                  Amount between Shenzhen BAK Battery Co., Ltd. and Agricultural
                  Bank dated July 29, 2005. (2)
         10.36    Summary of Loan  Agreement  between  Shenzhen BAK Battery Co.,
                  Ltd. and Agricultural Bank dated July 29, 2005. (2)
         10.37    Guaranty  Contract  by  Xiangqian  Li  in  favor  of  Shenzhen
                  Longgang  Branch,  Agricultural  Bank of China  dated July 29,
                  2005. (2)
         10.38    Intentionally omitted.
         10.39    Summary of Guaranty Contract of Maximum Amount by Shenzhen BAK
                  Battery Co., Ltd. and Shenzhen  Development  Bank dated August
                  30, 2005. (2)
         10.40    Summary of Guaranty Contract of Maximum Amount by Shenzhen BAK
                  Battery Co., Ltd. and Shenzhen Commercial Bank dated March 17,
                  2005. (2)
         10.41    China BAK Battery, Inc. Stock Option Plan (2)
         10.42    Form of  Nonqualified  Stock Option  Agreement under the China
                  BAK Battery, Inc. Stock Option Plan (2)
         10.43    Form of Securities Purchase Agreement dated September 14, 2005
                  by and  among  China  BAK  Battery,  Inc.  and  the  investors
                  signatory thereto. (4)
         10.44    Form of Registration Rights Agreement dated September 16, 2005
                  by and  among  China  BAK  Battery,  Inc.  and  the  investors
                  signatory thereto. (4)
         10.45    Summary of  Comprehensive  Credit Facility  Agreement  between
                  Shenzhen BAK Battery Co.,  Ltd.  and  Shenzhen  Branch,  China
                  Construction Bank dated August 24, 2005. (3)
         10.46    Irrevocable  Letter of Guaranty  made by Xiangqian Li in favor
                  of Shenzhen Branch,  China  Construction Bank dated August 19,
                  2005. (3)
         10.47    Summary of Loan  Agreement  between  Shenzhen BAK Battery Co.,
                  Ltd. and Shenzhen Longgang Branch,  Agricultural Bank of China
                  dated September 22, 2005. (3)
         10.48    Summary of Loan  Agreement  between  Shenzhen BAK Battery Co.,
                  Ltd. and Shenzhen Longgang Branch,  Agricultural Bank of China
                  dated September 27, 2005. (3)
         10.49    Guaranty  Contract  of Maximum  Amount  made by  Shenzhen  BAK
                  Battery  Co.,  Ltd.  in  favor  of  Longhua  Branch,  Shenzhen
                  Development Bank dated September 16, 2005. (3)
         10.50    Roth Capital  Partners,  LLC Warrant dated September 16, 2005.
                  (5)
         10.51    Global  Hunter  Securities,  LLC Warrant  dated  September 16,
                  2005. (5)
         10.52    Indemnification  Agreement of Heritage Management Consultants,
                  Inc. (5)
         10.53    Employment  Agreement  between  Shenzhen BAK Battery Co., Ltd.
                  and Xiangqian Li dated August 3, 2001.(7)
         10.54    Employment  Agreement  between  Shenzhen BAK Battery Co., Ltd.
                  and Yongbin Han dated April 18, 2003.(7)
         10.55    Employment  Agreement  between  Shenzhen BAK Battery Co., Ltd.
                  and Huanyu Mao dated September 1, 2004. (7)
         21.1     Subsidiaries of the Registrant. (7)
         23.1     Consent of Independent Registered Public Accounting Firm. (7)
         31.1     Chief Executive Officer  Certification  furnished  pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002. (7)
         31.2     Chief Financial Officer  Certification  furnished  pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002. (7)
         32.1     Chief Executive Officer  Certification  furnished  pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002. (7)
         32.2     Chief Financial Officer  Certification  furnished  pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002. (7)
-------------
(1) Previously  filed as an exhibit to our Current Report on Form 8-K filed with
the Commission on January 21, 2005.



                                       43
<PAGE>

(2) Previously filed as an exhibit to our Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2005 filed with the Commission on August 19,
2005.

(3) Previously  filed as an exhibit to our Pre Effective  Amendment  Number 4 to
our Registration  Statement on Form SB-2 (file number 333-122209) filed with the
Commission on November 29, 2005.

(4) Previously  filed as an exhibit to our Current Report on Form 8-K filed with
the Commission on September 15, 2005.

(5)  Previously  filed as an exhibit to our Annual  Report on Form 10-KSB  filed
with the Commission on December 30, 2005.

(6) Previously  filed as an exhibit to our  Registration  Statement on Form SB-1
(*File Number 333-41124) filed with the Commission on July 10, 2000.

(7) Filed herewith.

* Confidential  treatment has been requested with respect to certain  provisions
of this agreement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
         --------------------------------------

Independent Auditors' Fees

         The following table  summarizes the fees of Schwartz  Levitsky  Feldman
L.L.P.,  our independent  auditor,  billed to us for each of the last two fiscal
years for audit  services  and billed to us in each of the last two fiscal years
for other services:



Fee Category                                               2005          2004
--------------------------------------------------------------------------------

Audit Fees(1)                                          $   161,000   $   190,000
Audit-Related Fees(2)                                  $    97,000   $      --
Tax Fees(3)                                            $      --     $      --
All Other Fees                                         $      --     $      --
                                                       -----------   -----------

   Total Fees                                          $   258,000   $   190,000
                                                       ===========   ===========

--------------------
(1)      Audit fees consist of fees for the audit of our  financial  statements,
         the  review  of  the  interim  financial  statements  included  in  our
         quarterly  reports  on  Form  10-Q,  and  other  professional  services
         provided  in  connection  with  statutory  and  regulatory  filings  or
         engagements.

(2)      Audit-related  fees consist of fees for assurance and related  services
         that are  reasonably  related to the  performance  of the audit and the
         review of our  financial  statements  and which are not reported  under
         "Audit  Fees".  These  services  relate  to  employee  benefit  audits,
         internal  control  reviews,  attest  services  that are not required by
         statute or regulation and consultations concerning financial accounting
         and reporting standards.

         None of the  audit-related  fees  billed  in 2005  or 2004  related  to
         services provided under the de minimis exception to the audit committee
         pre-approval requirements.

(3)      Tax fees  consist  solely of fees for tax  compliance,  which relate to
         preparation of original and amended tax returns and claims for refunds.

         None of the tax fees billed in 2005 or 2004 were provided  under the de
         minimis exception to the audit committee pre-approval requirements.

Pre Approval Policies and Procedures

We do not have an audit  committee.  Our board of  directors  will  evaluate and
approve in advance,  the scope and cost of the  engagement of an auditor  before
the auditor renders audit and non-audit services. We do not rely on pre-approval
policies and procedures.



                                       44
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Act, the Company and has
duly caused this  Amendment No. 1 to Annual Report to be signed on its behalf by
the undersigned, thereunto duly authorized.


         Dated: January 27, 2006


                             CHINA BAK BATTERY, INC.



                             By: Xiangqian Li
                                ------------------------------------------------
                                Xiangqian Li
                                Chairman, President, Chief Executive Officer and
                                Director


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment No. 1 to Annual Report has been signed below by the following
persons in the capacities and on the dates indicated.

Name                    Office                                  Date

 /s/ Xiangqian Li       Chairman, President, Chief Executive    January 27, 2006
-------------------     Officer and Director
Xiangqian Li            (Principal Executive Officer)




 /s/ Yongbin Han        Chief Financial Officer, Secretary,     January 27, 2006
-------------------     and Treasurer (Principal
Yongbin Han             Financial and Accounting Officer)








                                       45
<PAGE>
                             CHINA BAK BATTERY, INC.
                        CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2005 AND 2004






                                TABLE OF CONTENTS



Report of Independent Registered Public Accounting Firm                      F-1

Consolidated Balance Sheets as of September 30, 2005 and 2004                F-2

Consolidated Statements of Operations for the Years Ended September 30,
  2005 and 2004                                                              F-3

Consolidated Statements of Changes in Stockholders' Equity for the Years
  Ended September 30, 2005 and 2004                                          F-4

Consolidated Statements of Cash Flows for the Years Ended
  September 30, 2005 and 2004                                                F-5

Notes to Consolidated Financial Statements                            F-6 - F-31



















                                      F-i
<PAGE>







                  Letterhead of Schwartz Levitsky Feldman llp


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders of
China BAK Battery, Inc.
and Subsidiaries


We have  audited  the  accompanying  consolidated  balance  sheet of  China  BAK
Battery,  Inc. as of  September  30, 2005 and 2004 and the related  consolidated
statements of changes in  stockholders'  equity,  operations  and cash flows for
each of the two years ended September 30, 2005 and 2004 (all expressed in United
States dollars).  These consolidated financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these consolidated financial statements based on our audits.

We conducted our audits in accordance  with the Standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management  as  well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of China BAK Battery,
Inc. as of September 30, 2005 and 2004 and the results of its operations and its
cash  flows for each of the two years  ended  September  30,  2005 and 2004,  in
conformity with accounting principles generally accepted in the United States of
America.

As described in Notes 7 and 14 the Company has not yet obtained  final  approval
from the  relevant  authorities  for the  acquisition  of land use rights to the
property which it occupies.  However, the Company has commenced  construction of
its  facilities on the property and has reflected the costs  incurred to date as
long-term  assets on the balance  sheet  described as "property  and equipment -
building", "construction in process" and "land use rights", with the expectation
that approval will be obtained  within the next fiscal year.  The Company may be
at  risk  as  more  fully  set  out in the  notes  mentioned  above  should  the
application be rejected.  The accompanying  consolidated financial statements do
not include any  adjustments  that might result  should its  application  not be
approved.

The comparative figures for the year ended September 30, 2004 have been restated
as  more  fully  described  in  notes  7 and  21 to the  consolidated  financial
statements.


                                               /s/ Schwartz Levitsky Feldman llp

                                               Chartered Accountants

Toronto, Ontario, Canada
December 28, 2005, except for notes 20 a), b), c) and 21
  as to which the date is January 12, 2006 and note
  20 d) as to which the date is January 30, 2006








                                      F-1
<PAGE>
<TABLE>
<CAPTION>

                             CHINA BAK BATTERY, INC.
                           Consolidated Balance Sheets
                        As of September 30, 2005 and 2004
           (Amounts expressed in US Dollars, except number of shares)


                                                                    September 30,    September 30,
                                                                         2005             2004
                                                                          $                $
                                                                                       Restated
<S>                                                                 <C>              <C>
                                     Assets
                                     ------
Current Assets
   Cash                                                                33,055,784        3,212,176
   Cash - Restricted                                                   19,392,280        7,120,069
   Accounts Receivable, Net                                            43,379,754       20,999,561
   Inventories                                                         21,696,226       29,535,985
   Prepaid Expenses                                                     1,448,119        1,330,645
   Notes Receivable                                                       484,028           18,122
   Accounts Receivable - Related Party                                    271,873          911,093
                                                                    -------------    -------------
        Total Current Assets                                          119,728,064       63,127,651
                                                                    -------------    -------------

Long-Term Assets
   Property, Plant  and Equipment                                      52,160,610       19,875,583
   Construction in Progress                                            17,804,181       23,656,190
   Land Use Rights                                                      3,246,791        4,029,038
   Less Accumulated Depreciation                                       (5,873,954)      (2,370,774)
                                                                    -------------    -------------
      Long-Term Assets, Net                                            67,337,628       45,190,037
                                                                    -------------    -------------

Other Assets
   Other Assets                                                           566,703          225,972
   Intangible Assets, Net                                                  53,379           58,362
                                                                    -------------    -------------
        Total Other Assets                                                620,082          284,334
                                                                    -------------    -------------
   Total Assets                                                       187,685,774      108,602,022
                                                                    =============    =============

                      Liabilities and Stockholders' Equity
                      ------------------------------------
Current Liabilities
   Accounts Payable                                                    17,836,561       23,570,087
   Bank Loans, Short Term                                              39,545,230       27,304,162
   Short-Term Loans                                                          --          1,812,316
   Notes Payable                                                       29,577,308       20,772,559
   Land Use Rights Payable                                              2,962,560        3,750,756
   Construction Costs Payable                                           5,241,883        6,347,846
   Customer Deposits                                                      655,065          369,390
   Accrued Expenses                                                     3,196,594        5,247,656
   Other Liabilities                                                      712,506          181,223
                                                                    -------------    -------------
        Total Current Liabilities                                      99,727,707       89,355,995
                                                                    -------------    -------------

CONTINGENCIES AND COMMITMENTS (NOTE 14)

Stockholders' Equity
   Common Stock - $.001 Par Value; 100,000,000 Shares Authorized;
   48,878,396 and 31,225,642 shares issued and outstanding at
   September 30, 2005 and 2004, respectively                               48,878           31,226
   Additional Paid In Capital                                          68,012,808       12,052,845
   Accumulated Comprehensive Income (Loss)                                362,728             (144)
   Reserves                                                             3,688,989        1,724,246
   Retained Earnings                                                   15,844,664        5,437,854
                                                                    -------------    -------------
       Total Stockholders' Equity                                      87,958,067       19,246,027
                                                                    -------------    -------------
   Total Liabilities and Stockholders' Equity                         187,685,774      108,602,022
                                                                    =============    =============
</TABLE>


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


                                      F-2
<PAGE>

                             CHINA BAK BATTERY, INC.
                      Consolidated Statements of Operations
                 For the Years Ended September 30, 2005 and 2004
           (Amounts expressed in US Dollars, except number of shares)

                                                          2005          2004

                                                            $             $
                                                                       Restated

Revenues, Net of Returns                               101,921,583    63,746,202

Cost of Goods Sold                                      76,234,834    49,921,818
                                                       -----------   -----------

Gross Profit                                            25,686,749    13,824,384
                                                       -----------   -----------

Expenses:
   Selling                                               4,023,582     1,877,878
   General and Administrative                            5,027,154     3,141,125
   Research and Development                                541,735       328,779
   Bad Debts Expense                                       769,807       326,990
                                                       -----------   -----------
     Total Expenses                                     10,362,278     5,674,772
                                                       -----------   -----------

Operating Income                                        15,324,471     8,149,612

Other Expenses
   Finance Costs                                         2,395,137     1,006,056
   Other Expenses                                           28,117         2,916
                                                       -----------   -----------

Net Income Before Provision for
   Income Tax                                           12,901,217     7,140,640

                                                       -----------   -----------
Provision for Income Tax                                   526,840       394,333
                                                       -----------   -----------

Net Income                                              12,374,377     6,746,307
                                                       ===========   ===========

Net Income Per Common and Common
  Equivalent Share:
     Basic                                                    0.32          0.22
                                                       ===========   ===========
     Diluted                                                  0.32          0.22
                                                       ===========   ===========
            Weighted Average Shares Outstanding:
     Basic                                              38,288,874    31,225,642
                                                       ===========   ===========
     Diluted                                            38,405,401    31,225,642
                                                       ===========   ===========







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

                                      F-3
<PAGE>
<TABLE>
<CAPTION>

                             CHINA BAK BATTERY, INC.
           Consolidated Statements of Changes in Stockholders' Equity
                 For the Years Ended September 30, 2005 and 2004
           (Amounts expressed in US Dollars, except number of shares)

                                                                            Accumulated
                                                                                Other
                                                              Additional   Comprehensive
                                Number of        Common        Paid In         Income                     Retained     Stockholders'
                                 Shares          Stock         Capital         (Loss)        Reserves     Earnings        Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>              <C>          <C>           <C>             <C>          <C>           <C>
                                                     $            $              $              $             $              $
                                Restated         Restated     Restated
Balance -
September 30, 2003              31,225,642         31,226      1,176,927            (49)       651,583     3,630,298      5,489,985
-----------------------------------------------------------------------------------------------------------------------------------
Net Income                            --             --             --             --             --       6,746,307      6,746,307

Foreign Currency
Translation                           --             --             --              (95)          --            --              (95)
-----------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive
Income                                --             --             --             --             --            --        6,746,212
-----------------------------------------------------------------------------------------------------------------------------------
Contribution of Cash by
Stockholders                          --             --       10,875,918           --             --            --       10,875,918

Transfer to Reserves                  --             --             --             --        1,072,663    (1,072,663)          --

Deemed Distribution to
Shareholder -
Intangible Assets                     --             --             --             --             --      (3,866,088)    (3,866,088)
-----------------------------------------------------------------------------------------------------------------------------------
Balance -
September 30, 2004              31,225,642         31,226     12,052,845           (144)     1,724,246     5,437,854     19,246,027
-----------------------------------------------------------------------------------------------------------------------------------
Net Income                            --             --             --             --             --      12,374,377     12,374,377

Foreign Currency
Translation                           --             --             --          362,872           --            --          362,872
-----------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive
Income                                --             --             --             --             --            --       12,737,249
-----------------------------------------------------------------------------------------------------------------------------------
Recapitalization                 1,152,458          1,152           --             --             --         (2,824)         (1,672)

Shares Issued for Proceeds
of $17.0 Million                 8,600,433          8,600     16,991,400           --             --           --        17,000,000

Shares Issued for Proceeds
of $43.4 Million                 7,899,863          7,900     43,441,347           --             --           --        43,449,247

Contribution of Cash by
Stockholders Acquiring Shares
of BAK International Limited          --              --      11,500,000           --             --            --       11,500,000

Distribution of Cash to
Stockholders in Connection
with Acquisition of Shares
of China BAK Battery, Inc.            --             --      (11,500,000)          --             --            --      (11,500,000)

Cost of Raising Capital               --             --       (4,472,784)          --             --            --       (4,472,784)

Transfer to Reserves                  --             --             --             --        1,964,743    (1,964,743)          --
-----------------------------------------------------------------------------------------------------------------------------------
Balance -
September 30, 2005              48,878,396         48,878     68,012,808        362,728      3,688,989    15,844,664     87,958,067
===================================================================================================================================
</TABLE>


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

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

                             CHINA BAK BATTERY, INC.
                      Consolidated Statements of Cash Flows
                 For the Years Ended September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)

                                                                   2005            2004
                                                                    $                $
                                                                                  Restated
<S>                                                            <C>             <C>
Cash Flows from (used for) Operating Activities
Net Income                                                       12,374,377       6,746,307
Adjustments to Reconcile Net Income to Net Cash
   from Operating Activities:
  Bad Debt Expense                                                  769,807         326,990
  Depreciation and Amortization                                   3,511,079       1,732,707
  Changes in Assets and Liabilities:
     Accounts Receivable                                        (22,380,193)    (14,543,660)
     Inventories                                                  7,309,304     (21,542,204)
     Prepaid Expenses                                              (117,474)       (605,800)
     Notes Receivable                                              (465,906)        (18,122)
     Account Receivable - Related Party                             639,220            --
     Other Assets                                                  (340,731)           --
     Accounts Payable                                            (5,733,526)     18,405,499
     Land Use Rights Payable                                         (5,949)           --
     Construction Costs Payable                                  (1,105,963)      6,347,846
     Customer Deposits                                              285,675        (286,001)
     Accrued Expenses                                            (2,051,063)      3,464,904
     Other Liabilities                                              531,283          60,408
                                                               ------------    ------------
       Net Cash Flows from (used for) Operating Activities       (6,780,060)         88,874
                                                               ------------    ------------

Cash Flows from (used for) Investing Activities
  Acquisition of Property, Plant and Equipment                  (32,285,027)    (14,906,846)
  Construction in Progress                                        5,852,009     (23,379,077)
   Intangible Assets                                                 (1,584)        (47,285)
                                                               ------------    ------------
       Net Cash Flows used for Investing Activities             (26,434,602)    (38,333,208)
                                                               ------------    ------------

Cash Flows from (used for) Financing Activities
  Proceeds from Borrowings                                      120,005,439      57,740,719
  Repayment of Borrowings                                      (100,771,939)    (17,429,652)
  Cash Pledged To Bank                                          (12,272,211)     (6,299,377)
  Loans to Related Parties                                             --          (235,840)
  Deemed Distribution to Shareholder - Intangible Assets               --        (3,866,088)
  Proceeds from Issuance of Capital Stock                        55,976,464      10,875,918
  Contribution of Cash from Stockholders Acquiring Shares of
     BAK International Limited                                   11,500,000            --
  Distribution of Cash to Stockholders in Connection with
      Acquisition of Shares of China BAK Battery, Inc.          (11,500,000)           --
                                                               ------------    ------------
        Net Cash Flows from Financing Activities                 62,937,753      40,785,680
                                                               ------------    ------------

Effect of Exchange Rate Changes on Cash                             120,517             (95)

Net Increase in Cash                                             29,843,608       2,541,251

Cash - Beginning of Period                                        3,212,176         670,925
                                                               ------------    ------------

Cash - End of Period                                             33,055,784       3,212,176
                                                               ============    ============

Supplemental Cash Flow Disclosures:
  Interest Paid                                                   1,932,257       1,007,287
                                                               ============    ============
  Income Taxes Paid                                                 487,808            --
                                                               ============    ============
  Recapitalization                                                    1,152            --
                                                               ============    ============
</TABLE>


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

                                      F-5
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


1.   PRINCIPAL ACTIVITIES AND ORGANIZATION

     China BAK Battery, Inc. (the "Company" or "China BAK") is a holding company
     whose  Hong  Kong-based   subsidiary,   BAK  International   Limited  ("BAK
     International") and China-based subsidiary,  Shenzhen BAK Battery Co., Ltd.
     ("BAK" or "Shenzhen BAK") focus on the manufacture,  commercialization  and
     distribution  of a wide  variety of  standard  and  customized  lithium ion
     (known as  "Li-ion" or "Li-ion  cell")  rechargeable  batteries  for use in
     cellular   telephones,   as  well  as  various  other  portable  electronic
     applications,  including  high-power handset telephones,  laptop computers,
     power tools,  digital  cameras,  video  camcorders,  MP3 players,  electric
     bicycles, hybrid/electric motors, and general industrial applications.

     BAK was founded on August 3, 2001 as a China-based  company whose  products
     primarily  target the cell phone  market in the  Peoples  Republic of China
     (PRC).

     BAK  International was incorporated in Hong Kong on December 29, 2003 under
     the Companies  Ordinance as BATCO International  Limited,  and subsequently
     changed  its name to BAK  International  Limited on  November  3, 2004.  On
     November 6, 2004, the  stockholders of BAK agreed to purchase,  for a total
     of $11.5 million in cash, 96.8% of the outstanding  shares of capital stock
     of BAK International, in the same proportion as their ownership interest in
     BAK, and BAK International agreed to purchase, for a total of $11.5 million
     in cash, all of the 31,225,642  outstanding shares of capital stock of BAK.
     Five stockholders of BAK, with ownership  interests of approximately  1.85%
     of the 31,225,642 total  outstanding  shares of BAK, elected not to acquire
     shares in BAK International.  The five nonparticipating stockholders of BAK
     sold their right to acquire their  proportional  ownership  interest in BAK
     International  to other BAK  stockholders as well as seven persons who were
     not  previously  stockholders  of  BAK  for  cash,  and  the  proportionate
     interests  in  BAK   International  to  which  the  five   nonparticipating
     stockholders  were entitled were acquired by their  transferees.  After the
     share purchase  transactions between BAK International and the stockholders
     of BAK were complete,  there were  31,225,642  shares of BAK  International
     stock  outstanding,  exactly  the same as the  number of shares of  capital
     stock of BAK outstanding immediately prior to the share purchases,  and the
     stockholders  of BAK  International  were  substantially  the  same  as the
     stockholders of BAK prior to the share purchases.  Consequently,  the share
     purchases  between BAK  International and the stockholders of BAK have been
     accounted  for as a  recapitalization  of BAK  with  no  adjustment  to the
     historical  basis of the assets and  liabilities of BAK, and the operations
     were  consolidated as though the transactions  occurred as of the beginning
     of the first accounting  period presented in these  consolidated  financial
     statements.

     As more  fully  described  in Note 2, on  January  20,  2005,  the  Company
     completed  a  stock  exchange  transaction  with  the  stockholders  of BAK
     International, whereby 100% of the stock of BAK International was exchanged
     for 97.2% of the post-exchange stock of the Company.



                                      F-6
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


1.   PRINCIPAL ACTIVITIES AND ORGANIZATION (cont'd)

     Also on January 20, 2005, BAK  International  closed a private placement of
     its securities with unrelated  investors  whereby it issued an aggregate of
     8,600,433  shares of common  stock for gross  proceeds of  $17,000,000.  In
     conjunction with this financing,  the Chairman and major stockholder of the
     Company  agreed to place  2,179,550  shares of the  Company's  common stock
     owned by him into an escrow account, of which 50% are to be released to the
     investors  in the  private  placement  if audited net income for the fiscal
     year  ended  September  30,  2005  is not at  least  $12,000,000,  and  the
     remaining  50% are to be released to investors in the private  placement if
     audited net income for the fiscal year ending  September 30, 2006 is not at
     least $27,000,000.

     China BAK was originally  incorporated as Medina Coffee, Inc. on October 4,
     1999. The Company  changed its name from Medina  Coffee,  Inc. to China BAK
     Battery, Inc. on February 14, 2005.

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

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

     The  economy  of  PRC  differs  significantly  from  the  economies  of the
     "western"  industrialized  nations in such respects as structure,  level of
     development,  gross national product,  growth rate,  capital  reinvestment,
     resource  allocation,  self-sufficiency,  rate of inflation  and balance of
     payments  position,  among  others.  Only  recently has the PRC  government
     encouraged substantial private economic activities. The Chinese economy has
     experienced  significant  growth in the past several years, but such growth
     has been  uneven  among  various  sectors  of the  economy  and  geographic
     regions.   Actions  by  the  PRC  government  to  control   inflation  have
     significantly  restrained  economic  expansion in the recent past.  Similar
     actions  by the PRC  government  in the  future  could  have a  significant
     adverse effect on economic conditions in the PRC.

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

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



                                      F-7
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


1.   PRINCIPAL ACTIVITIES AND ORGANIZATION (cont'd)

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

     The Company's  financial  instruments  that are exposed to concentration of
     credit risk consist  primarily of cash and cash  equivalents,  and accounts
     receivable  from customers.  Cash and cash  equivalents are maintained with
     major banks in the PRC. The Company's  business  activity is primarily with
     customers in the PRC. The Company periodically performs credit analyses and
     monitors  the  financial  condition  of its  customers in order to minimize
     credit risk.

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

     On January 1, 1994, the PRC government introduced a single rate of exchange
     as  quoted  daily by the  People's  Bank of China  (the  "Unified  Exchange
     Rate").  On July 21, 2005,  the PRC  government  reformed the exchange rate
     system into a managed floating  exchange rate system based on market supply
     and demand with reference to a basket of currencies.  No  representation is
     made that the RMB amounts have been, or could be, converted into US dollars
     at that or any rate.  This  quotation of exchange rates does not imply free
     convertibility  of RMB to other foreign  currencies.  All foreign  exchange
     transactions  continue  to take place  either  through the Bank of China or
     other banks  authorized to buy and sell foreign  currencies at the exchange
     rate quoted by the  People's  Bank of China.  Approval of foreign  currency
     payments  by the  People's  Bank of China or  other  institutions  requires
     submitting a payment  application  form together with suppliers'  invoices,
     shipping documents and signed contracts.


2.   RECAPITALIZATION TRANSACTION

     On January 20, 2005,  the Company  completed a stock  exchange  transaction
     with the  stockholders of BAK  International.  The exchange was consummated
     under Nevada law pursuant to the terms of a Securities  Exchange  Agreement
     by and among  China BAK,  BAK  International  and the  stockholders  of BAK
     International.  Pursuant to the Securities Exchange Agreement,  the Company
     issued  39,826,075  shares of common stock,  par value $0.001 per share, to
     the  stockholders  of BAK  International  (31,225,642  shares  to  original
     stockholders  of  China  BAK  and  8,600,433   shares  to  new  investors),



                                      F-8
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


2.   RECAPITALIZATION TRANSACTION (cont'd)

     representing  approximately 97.2% of the China BAK post-exchange issued and
     outstanding  common stock, in exchange for 100% of the outstanding  capital
     stock of BAK  International.  The Company presently carries on the business
     of  BAK  , a  Chinese  corporation  and  BAK  International's  wholly-owned
     subsidiary.

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

3.   BASIS OF PRESENTATION

     The  consolidated  financial  statements  are prepared in  accordance  with
     generally  accepted  accounting  principles  used in the  United  States of
     America  and  include  the  accounts  of  China  BAK  Battery,   Inc.,  BAK
     International  Limited and  Shenzhen  BAK Battery Co, Ltd.  for all periods
     presented. All significant intercompany balances and transactions have been
     eliminated in consolidation.

4. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

     A.   Cash and Cash Equivalents

          Cash and cash  equivalents  include  cash on hand and any other highly
          liquid investments purchased with an original maturity of three months
          or less. The carrying  amounts  approximate  fair value because of the
          short-term  maturity of those instruments.  As stated in the following
          Note 10, a portion of the Company's cash is restricted cash, which has
          been  pledged  to a bank to  secure  short-term  bank  loans and notes
          payable.  This restricted cash is not as liquid as other cash, and has
          been  separately  stated  in  the  attached   consolidated   financial
          statements.

     B.   Accounts Receivable

          In  order  to  determine  the fair  value  of the  Company's  accounts
          receivable,  the Company records a provision for doubtful  accounts to
          cover  estimated  credit losses.  Management  reviews and adjusts this
          allowance   periodically  based  on  historical   experience  and  its
          evaluation of the collectability of outstanding  accounts  receivable.
          The  Company  evaluates  the credit  risk of its  customers  utilizing
          historical data and estimates of future performance.



                                      F-9
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)

4.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (cont'd)

     C.   Inventories

          Inventories  are stated at the lower of cost or net realizable  value.
          Cost is calculated on the moving  average basis and includes all costs
          to acquire and other costs  incurred in bringing  the  inventories  to
          their present  location and condition.  The Company  evaluates the net
          realizable  value of its  inventories on a regular basis and records a
          provision  for loss to reduce the computed  moving  average cost if it
          exceeds the net realizable value.

     D.   Property, Plant and Equipment

          Property, plant and equipment are carried at cost. The cost of repairs
          and  maintenance  is  expensed as  incurred;  major  replacements  and
          improvements are capitalized. When assets are retired or disposed, the
          cost and accumulated  depreciation are removed from the accounts,  and
          any  resulting  gains or losses are  included in income in the year of
          disposition.  The Company  recognizes  a scrap value of 5% of the cost
          basis and depreciation is calculated on a straight-line basis over the
          estimated  useful lives of the assets.  The estimated useful lives are
          as follows:

          Buildings                                                30 - 40 years
          Plant and machinery                                       5 - 12 years
          Motor vehicles                                                 8 years
          Office equipment and furnishings                               5 years
          Leasehold improvements                                     2 - 5 years

     E.   Intangible Assets

          Trademarks   are  carried  at  cost  and  are   amortized   using  the
          straight-line  method over the estimated  useful lives of 5 years from
          the date the Company  acquired  the  trademark.  Management  is of the
          opinion that no impairment loss is considered necessary at year-end.

     F.   Fair Value of Financial Instruments

          The  carrying  value  of  financial   instruments,   including   cash,
          receivables, accounts payable, accrued expenses and debt, approximates
          their fair value at September 30, 2005 and 2004 due to the  relatively
          short-term nature of these instruments.

     G.   Construction in Progress

          Construction in progress,  which represents  buildings,  machinery and
          other long-term assets under  construction or installation,  is stated
          at cost  less any  impairment  losses,  and is not  depreciated.  Cost
          consists  of  the  direct   costs  of   purchase,   construction   and
          installation.   Construction   in  progress  is  reclassified  to  the
          appropriate  category of long-term assets when completed and ready for
          use.  Management  is  of  the  opinion  that  no  impairment  loss  is
          considered necessary at year-end.



                                      F-10
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


4.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (cont'd)

     H.   Income Taxes

          The Company  accounts for income tax under the provisions of Statement
          of Financial  Accounting Standards No. 109, which requires recognition
          of deferred tax assets and  liabilities  for the  expected  future tax
          consequences  of events that have been  included  in the  consolidated
          financial  statements  or  tax  returns.  Deferred  income  taxes  are
          provided  using the  liability  method.  Under the  liability  method,
          deferred  income taxes are  recognized for all  significant  temporary
          differences  between the tax and financial  statement  bases of assets
          and  liabilities.  In addition,  the Company is required to record all
          deferred tax assets,  including  future tax benefits of capital losses
          carried  forward,  and to  record  a  "valuation  allowance"  for  any
          deferred  tax assets  where it is more  likely than not that the asset
          will not be realized.

          In  accordance  with  the  relevant  income  tax  laws  applicable  to
          enterprises  operating in the Shenzhen  Special  Economic  Zone of the
          PRC,  the profits of BAK are fully  exempt from income tax for 2 years
          ("tax  holiday"),  commencing  from the first  profit  making  year of
          operations,  followed by a 50% exemption for the immediate  next three
          years ("tax preferential period"), after which the profits of BAK will
          be  taxable  at the full  reduced  rate  for New and  High  Technology
          Enterprises, currently 15%. In addition, due to the additional capital
          invested  in BAK in 2005,  BAK was  granted  a full tax  exemption  on
          55.88% of its taxable  income for calendar  years 2005 and 2006, and a
          50% tax exemption on 55.88% of its taxable  income for calendar  years
          2007 to 2009.

          Further, on August 11, 2005, BAK was recognized as a Foreign-Invested,
          Advanced-Technology Enterprise by the Shenzhen government, whereby BAK
          will enjoy an additional three year tax preferential period for all of
          its taxable income after the expiration of the original three year tax
          preferential  period,  with a 7.5% tax rate on the remaining 44.12% of
          its taxable  income from 2007 to 2009. If the Company fails to qualify
          for a reduced tax program following the end of the 2009 calendar year,
          the  Company  will be  required to pay tax at the full 15% tax rate of
          its taxable income applicable to Shenzhen starting in 2010.

          The Company has purchased  $173,000 of equipment  made in China during
          the year ended  September  30,  2005,  and will be eligible  for a tax
          credit,  equal to 40% of theses purchases,  against  additional future
          income tax generated through the purchase of this new equipment.

          Had this tax holiday,  tax preferential period and tax credit not been
          available,  income tax expense would have  increased by $1,408,343 for
          the year ended  September  30,  2005 and  $691,763  for the year ended
          September 30, 2004.

     I.   Government Subsidies

          Subsidies from the government are recognized at their fair values when
          received,  or when  there is  reasonable  assurance  that they will be
          received, and all required conditions have been complied with.



                                      F-11
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)



4.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (cont'd)


     I.   Government Subsidies (cont'd)

          Revenue from government sponsored grants or subsidies is recognized as
          research  activities  are performed or as  development  milestones are
          completed  under  the  terms  of  the  agreement.  Costs  incurred  in
          connection with the performance of activities  under these  agreements
          are  expensed as  incurred.  The Company  defers  revenue  recognition
          related to  payments  received  during the current  year for  research
          activities to be performed in the following year.

          The  Company  received  subsidies  from the Long Gang  Technology  and
          Science  Bureau of  $123,500  and  $181,000  during  the  years  ended
          September 30, 2005 and September 30, 2004, respectively.  The $123,500
          grant,  which does not need to be  repaid,  was  awarded  to  purchase
          equipment,  and was  accounted for by reducing  equipment  cost in the
          accompanying  consolidated financial statements.  The $181,000 subsidy
          was awarded to further the  research of  LiNiCoO2,  an advanced  anode
          material in the Li-on battery cell. This subsidy requires repayment of
          principal and interest, at the rate of 3% per annum, at the end of its
          two year term on December  26,  2005.  This  subsidy was recorded as a
          liability in the accompanying consolidated financial statements.

     J.   Related Parties

          Parties  are  considered  to be related if one party has the  ability,
          directly  or  indirectly,  to control  the other  party,  or  exercise
          significant  influence over the other party,  in making  financial and
          operational  decisions.  Parties are also  considered to be related if
          they are subject to common  control or common  significant  influence.
          Related parties may be individuals or corporate entities.

     K.   Impairment of Long-Term Assets

          In accordance with the provisions of SFAS No. 144, "Accounting for the
          Impairment or Disposal of Long-Lived Assets",  the Company's policy is
          to record an impairment loss against the balance of a long-lived asset
          in the period when it is  determined  that the carrying  amount of the
          asset  may not be  recoverable.  This  determination  is  based  on an
          evaluation of such factors as the occurrence of a significant event, a
          significant  change in the  environment  in which the business  assets
          operate,  or if the expected future  non-discounted  cash flows of the
          business  are  determined  to be less than the  carrying  value of the
          assets.  If impairment is deemed to exist, the assets are written down
          to fair value.  Management also evaluates events and  circumstances to
          determine whether revised estimates of useful lives are warranted.  As
          of September 30, 2005,  management expects its long-lived assets to be
          fully recoverable.



                                      F-12
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)



4.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (cont'd)

     L.   Foreign Currency Translation

          The Company  maintains  its books and  accounting  records in Renminbi
          ("RMB"),  the PRC's  currency and the Company's  functional  currency.
          Translation of amounts from RMB into United States dollars ("US$") has
          been made at the following exchange rates for the respective years:

          September 30, 2005:
          Balance sheet                                 RMB 8.0920   to US$ 1.00
          Operating statements                          RMB 8.2413   to US$ 1.00

          September 30, 2004:
          Balance sheet                                 RMB 8.27670 to US$ 1.00
          Operating statements                          RMB 8.26688 to US$ 1.00

          In translating the  consolidated  financial  statements of the Company
          from its functional currency,  in RMB, into its reporting currency, in
          United States dollars, balance sheet accounts are translated using the
          closing  exchange  rate in effect at the balance sheet date and income
          and expense  accounts are translated  using the average  exchange rate
          prevailing during the reporting period. Adjustments resulting from the
          translation,  if any, are included in accumulated comprehensive income
          (loss) in stockholder's equity in the Company's financial statements.

          RMB is not readily  convertible  into United  States  dollars or other
          foreign currencies.  Prior to July 21, 2005, the foreign exchange rate
          between  the  United  States  dollar  and the RMB had been  stable  at
          approximately  RMB 8.28 to US$1.00 for the last several years. On July
          21, 2005, the Central Bank of China  announced that it would allow the
          Yuan  (Renminbi)  to move to a flexible  exchange  rate with a maximum
          daily  variance  against the US dollar of 0.3%.  No provision has been
          made  in the  accompanying  financial  statements  for the  change  in
          currency  policy,  nor  has  any  determination  been  made  as to the
          potential impact this may have on the Company's future operations.  No
          representation  is made that RMB amounts could have been, or could be,
          converted  into United  States  dollars or any other  currency at that
          rate or any other rate.

     M.   Use of Estimates

          The preparation of consolidated  financial  statements,  in conformity
          with generally accepted accounting principles,  requires management to
          make estimates and assumptions that affect certain reported amounts of
          assets and  liabilities,  and  disclosures  of  contingent  assets and
          liabilities,  at the date of the  financial  statements,  and reported
          amounts of revenues and expenses during the reporting  period.  Actual
          results could differ from those estimates.



                                      F-13
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


4.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (cont'd)

     N.   Revenue Recognition, Returns and Warranties

          The Company  recognizes revenue when the significant risks and rewards
          of ownership have transferred  pursuant to PRC law,  including factors
          such as when persuasive evidence of an arrangement exists, shipment or
          delivery,  depending  upon the sales order,  has  occurred,  the sales
          price is fixed and  determinable,  sales and value-added tax laws have
          been complied with, and collectability is reasonably  assured.  In the
          event goods are returned from a customer,  revenue is reduced, and the
          returned goods are placed back into  inventory  during the period that
          the returned  goods are received by the Company.  Concurrent  with the
          recognition  of revenue,  the Company  records a warranty  reserve for
          product  returns  as a  percentage  of  sales  based  upon  historical
          experience.

     O.   Employees' Benefits and Pension Obligations

          Mandatory  contributions,  based on gross salary payments, are made to
          the PRC  government's  health,  retirement  benefit  and  unemployment
          programs at the  statutory  rates in effect  during each period  These
          payments  are  charged to expense  in the same  period as the  related
          salary cost. See Note 14.

     P.   Comprehensive Income or Loss

          The Company  has adopted the  provisions  of  Statement  of  Financial
          Accounting Standards No. 130, "Reporting  Comprehensive Income" ("SFAS
          No. 130").  SFAS No. 130  establishes  standards for the reporting and
          display  of  comprehensive  income,  its  components  and  accumulated
          balances  in a full  set of  general  purpose  consolidated  financial
          statements.  SFAS No.  130  defines  comprehensive  income  or loss to
          include all changes in equity, except those resulting from investments
          by owners  and  distributions  to  owners,  including  adjustments  to
          minimum pension liabilities, accumulated foreign currency translation,
          and unrealized gains or losses on marketable securities.

     Q.   Concentrations of Credit Risk

          Financial   instruments  that  potentially   subject  the  Company  to
          significant  concentrations  of credit risk consist primarily of trade
          accounts  receivable.  The Company performs ongoing credit evaluations
          with respect to the financial condition of its creditors, but does not
          require  collateral.  In order to determine the value of the Company's
          accounts  receivable,  the Company  records a provision  for  doubtful
          accounts  to cover  probable  credit  losses.  Management  reviews and
          adjusts this allowance periodically based on historical experience and
          its  evaluation  of  the   collectability   of  outstanding   accounts
          receivable.

     R.   Research and Development Costs

          Research and development costs are charged to operating  expenses when
          incurred.  The  amounts  charged  in 2005 and 2004 were  $541,735  and
          $328,779 respectively.



                                      F-14
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)



4.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (cont'd)

     S.   Advertising Costs

          Advertising  costs consist  primarily of promoting the Company and the
          Company's   products   through   printed   advertisements   in   trade
          publications  and displaying the Company's  products at industry trade
          exhibitions.  The  Company  does not pay  slotting  fees or  engage in
          cooperative   advertising   programs,   buydown  programs  or  similar
          arrangements.   Advertising  costs  are  charged  to  operations  when
          incurred.  Advertising  costs  included  in  selling  expenses  in the
          accompanying  consolidated  financial  statements  were  $297,998  and
          $201,200 in 2005 and 2004, respectively.

     T.   Shipping And Handling Costs

          Shipping and handling costs represent costs incurred by the Company to
          ship its  products to  customers  using its own  delivery  vehicles or
          under  contract  with  professional   carriers  For  the  majority  of
          products,  which are sold to  customers  in the  Zhujiang  Delta,  the
          Company  uses its own delivery  vehicles.  For sales made to customers
          overseas,  the Company incurs  transportation  charges for delivery to
          the Port of Hong Kong.  All other  transportation  charges are paid by
          the customer.  Transportation  and freight  expenses were $150,937 and
          $83,981 for 2005 and 2004,  respectively,  and are included in selling
          expenses in the accompanying consolidated financial statements.

     U.   Net Income Per Common and Common Equivalent Share

          Basic and  diluted net income per common and common  equivalent  share
          are computed by dividing net income by the weighted  average number of
          common  shares  outstanding  for the period,  including  common  share
          equivalents for the Company's dilutive stock options and warrants. The
          weighted average common shares outstanding  reflect the effects of the
          share exchange transaction described in Note 2.

     V.   Share-Based Payments

          The Company  accounts  for stock  options  using the  intrinsic  value
          method as prescribed by Accounting  Principles Board Opinion (APB 25).
          Pro forma disclosures required under Statement of Financial Accounting
          Standards (SFAS) 123, "Accounting for Stock-Based Compensation," as if
          the Company had adopted the fair value-based  method of accounting for
          stock options, are presented below. See Note 19.


     W.   Classification of Operating Costs and Expenses

          The Company  records its operating  costs and expenses  generally with
          the following classifications:



                                      F-15
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)



4.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (cont'd)

     W.   Classification of Operating Costs and Expenses (cont'd)

          Cost of Goods Sold
          ------------------
          Cost of goods sold consists  primarily of raw materials,  direct labor
          and manufacturing overhead.  Manufacturing overhead consists primarily
          of  an  allocation  of  purchasing  and  receiving  costs,   supplies,
          utilities, depreciation, factory and equipment repairs and maintenance
          and inspection fees.

          Selling Expenses
          ----------------
          Selling  expenses  consist  primarily  of  payroll,   advertising  and
          promotion,   shipping  and  handling,   depreciation  and  travel  and
          entertainment.

          General and Administrative Expenses
          -----------------------------------
          General and  administrative  expenses  consist  primarily  of payroll,
          professional  fees,  insurance,  payroll taxes and  benefits,  general
          office  expenses,  travel  and  entertainment,   transportation,   and
          depreciation.


     X.   Recently Issued Accounting Standards

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

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

          In December 2004, the FASB issued SFAS No.123R,  "Share-Based Payment"
          ("SFAS 123R").  SFAS 123R revises FASB  Statement No. 123  "Accounting
          for  Stock-Based  Compensation"  and  supersedes  APB  Opinion  No. 25
          "Accounting  for Stock Issued to  Employees".  SFAS 123R  requires all
          public and non-public companies to measure and recognize  compensation
          expense for all  stock-based  payments  for  services  received at the



                                      F-16
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


4.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (cont'd)

     X.   Recently Issued Accounting Standards (cont'd)

          grant-date  fair  value,  with the cost  recognized  over the  vesting
          period (or the requisite  service period).  SFAS 123R is effective for
          small  business  issuers  for  all  interim  periods  beginning  after
          December  15,  2005.  As such,  the Company is required to adopt these
          provisions  at the  beginning  of the fiscal  quarter  ended March 31,
          2006.  The Company  expects the impact on its  consolidated  financial
          statements to be consistent with the fair value  disclosures  included
          in Note 19 to the consolidated financial statements.

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


5.   ACCOUNTS RECEIVABLE

     The  Company's  accounts  receivable  at  September  30,  2005 and 2004 are
     summarized as follows:

                                                           2005         2004
                                                             $            $

     Accounts receivable                                44,973,292   21,763,923
     Less:  allowance for doubtful accounts              1,593,538      764,362
                                                        ----------   ----------

     Accounts receivable, net                           43,379,754   20,999,561
                                                        ==========   ==========



     Accounts receivable reserve activity for the years ended September 30, 2005
     and 2004 is summarized as follows:

                                                           2005         2004
                                                             $            $

     Balance, beginning of year                            764,362      461,982
     Bad debts expense                                     805,479      302,380
     Foreign exchange adjustment                            23,697         --
                                                        ----------   ----------

     Balance, end of year                                1,593,538      764,362
                                                        ==========   ==========



                                      F-17
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


6.   INVENTORIES

     The Company's  inventories at September 30, 2005 and 2004 are summarized as
     follows:

                                                           2005         2004
                                                             $            $

     Raw materials                                       9,284,299    9,934,263
     Work in progress                                    2,738,069    1,872,465
     Finished goods                                      9,673,858   17,729,257
                                                        ----------   ----------

     Total inventories                                  21,696,226   29,535,985
                                                        ==========   ==========


7.   LONG-TERM ASSETS

     The  Company's  long-term  assets  at  September  30,  2005  and  2004  are
     summarized as follows:

                                                            2005         2004
                                                              $            $

     Building                                            30,763,727    4,535,876
     Machinery                                           19,920,180   14,242,696
     Vehicles                                               671,177      486,480
     Office equipment                                       459,408      304,773
     Leasehold improvements                                 346,118      305,758
                                                         ----------   ----------

     Total cost                                          52,160,610   19,875,583
                                                         ----------   ----------


                                                            2005         2004
                                                              $            $

     Building                                               427,568       19,024
     Machinery                                            4,838,119    2,006,717
     Vehicles                                               147,061       79,097
     Office equipment                                       119,627       53,402
     Leasehold improvements                                 341,579      212,534
                                                         ----------   ----------

     Total accumulated depreciation                       5,873,954    2,370,774
                                                         ----------   ----------

     Net book value                                      46,286,656   17,504,809

     Construction in progress                            17,804,181   23,656,190
     Land use rights                                      3,246,791    4,029,038
                                                         ----------   ----------

     Long-term assets, net                               67,337,628   45,190,037
                                                         ==========   ==========


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

                                                            2005         2004
                                                              $            $

     Cost of goods sold                                   2,901,262    1,635,971
     Selling expenses                                       416,701        8,603
     General and administrative expenses                    185,217       82,584
                                                         ----------   ----------

     Total depreciation expenses                          3,503,180    1,727,158
                                                         ==========   ==========



                                      F-18
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


7.   LONG-TERM ASSETS (cont'd)


     The  Company's  construction  in progress  consisted  of the  following  at
     September 30, 2005 and 2004:

                                                            2005         2004
                                                              $            $

     Land use fees                                        1,135,763    1,109,976
     Construction costs                                  11,735,920   18,258,222
     Land excavation                                      2,580,449    2,401,050
     Construction materials                               2,352,049      790,864
     Capitalized research and design                           --        143,403
     Other indirect costs                                      --        952,675
                                                         ----------   ----------

     Total construction in progress                      17,804,181   23,656,190
                                                         ==========   ==========



     Other indirect costs include road repairs,  water and sewer fees, temporary
     electric   fees,   environmental   fees,   equipment   rental   and   other
     administrative costs.

     The  Company  has  funded  the  construction  costs  with  cash  flow  from
     operations and proceeds from its share issuances,  and as such, no interest
     expense has been capitalized. The Company anticipates that the construction
     of their  facilities  will be completed  and placed into service by January
     2006. The Company has not yet obtained their certificate of land use right.
     The bureau of city  planning  and land  resource of  Shenzhen  have not yet
     approved the Company's application since the original zoning for the use of
     the land  conflicted  with both the city planning for education and biology
     and its current  designation as industrial use.  According to the agreement
     with the local  government  of Kuichong  Township  of Longgang  District of
     Shenzhen,  the Company has paid  $285,000  for the down payment on the land
     use  right  and the  balance  of  $2,962,000  is still  outstanding.  It is
     anticipated  that the  outstanding  balance  will be paid  within  the next
     twelve  months.  The local  government  of  Kuichong  Township  of Longgang
     District of Shenzhen  had,  however,  granted  permission to the Company to
     commence the  construction  of the new production  plant pending a decision
     from the bureau of city  planning.  The  Company  anticipates  that it will
     receive the approval from the bureau of city planning in January 2006.  See
     Note 14.




                                      F-19
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)



8.   OTHER ASSETS

     The Company's other assets at September 30, 2005 and 2004 are summarized as
     follows:

                                                           2005         2004
                                                             $            $

     Other receivables                                     160,626      283,937
     Long term prepayment                                  437,683         --
     Less:  allowance for doubtful accounts                (31,606)     (57,965)
                                                        ----------   ----------

     Other assets                                          566,703      225,972
                                                        ==========   ==========



     Other  receivables  reserve activity for the years ended September 30, 2005
     and 2004 is summarized as follows:

                                                           2005         2004
                                                             $            $

     Balance, beginning of year                            57,965        33,355
     Bad debts expense (reversal)                         (35,672)       24,610
     Foreign exchange rate                                  9,313          --
                                                       ----------    ----------

     Balance, end of year                                 (31,606)      (57,965)
                                                       ==========    ==========




9.   INTANGIBLE ASSETS

     The  Company's  intangible  assets  at  September  30,  2005  and  2004 are
     summarized as follows:

                                                           2005         2004
                                                             $            $

     Trademarks, technology and software                    65,919       63,904
     Less:  accumulated amortization                       (12,540)      (5,542)
                                                        ----------   ----------

     Intangible assets, net                                 53,379       58,362
                                                        ==========   ==========


     Amortization  expense for the years ended  September  30, 2005 and 2004 was
     $7,899 and $5,549, respectively.





                                      F-20
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


10.  BANK INDEBTEDNESS AND NOTES PAYABLE

     As of September 30, 2005 and 2004, the Company had several  short-term bank
     loans  with   outstanding   balances  of   $39,545,230   and   $27,304,162,
     respectively.   The  loans  were  used   primarily  to  support   operating
     activities,  carried interest rates ranging from 4.536% to 6.138%, and have
     maturity  dates  ranging from 5 to 12 months.  Each loan is  guaranteed  by
     Jilin Province Huaruan Technology Company,  Ltd. ("Huaruan",  a corporation
     owned by Xiangqian Li, BAK's  Chairman),  Xiangqian Li, BAK  International,
     related parties,  and others who are not related.  Neither Huaruan, Mr. Li,
     nor other  non-related  parties  receive  any  compensation  for  acting as
     guarantors.

     The Company is required to pledge cash,  inventories and equipment in order
     to secure these  short-term  bank loans and notes  payable,  summarized  as
     follows at September 30, 2005:

     Cash-restricted                                                $19,392,280
     Inventories                                                      7,661,888
     Equipment                                                        9,819,574
                                                                    -----------

     Total assets pledged                                           $36,873,742
                                                                    -----------


     Certain shares of the Company were pledged by Mr.  Xiangqian Li in order to
     secure these short-term bank loans.

     Notes payable  represents  customer  commitments in the ordinary  course of
     business.  The notes can generally be exchanged at a discount for cash with
     financial institutions.

     On September 30, 2004,  contrary to relevant PRC laws and regulations,  the
     Company borrowed $1,812,316 from Changzhou Lihai Investment Consulting Co.,
     Ltd.  The  Company  subsequently  repaid  this loan on  October  11,  2004.
     Management  believes  that  the  risk  to the  Company,  due to  this  loan
     arrangement, is very limited.

11.  RESERVES

     Pursuant to the accounting systems for business  enterprises as promulgated
     by the PRC,  the  profits  of BAK,  which are based on their PRC  statutory
     financial  statements,  are available for  distribution in the form of cash
     dividends only after they have satisfied all PRC tax liabilities,  provided
     for losses in previous years, and made  appropriations to reserve funds (as
     discussed below), as determined at the discretion of the Board of Directors
     in accordance with the PRC accounting  standards and regulations.  With the
     exception of the restriction on distributions and dividends, the Company is
     not limited or otherwise  restricted in making  distributions  by any other
     agencies or indentures.

     As  stipulated  by  the  relevant  laws  and  regulations  for  enterprises
     operating in the PRC, companies are required to make annual  appropriations
     to two  reserve  funds,  consisting  of the  statutory  surplus  and public
     welfare funds. In accordance with relevant PRC regulations and the articles
     of  association  of the  respective  companies,  companies  are required to
     allocate  a  certain  percentage  of  their  profits  after  taxation,   as
     determined in accordance  with the PRC accounting  standards  applicable to
     the companies, to the statutory surplus reserve, until such reserve reaches
     50% of the registered capital of the companies.





                                      F-21
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)



11.  RESERVES (cont'd)

     Net  income  reported  in the US  GAAP  consolidated  financial  statements
     differs  from that  reported in the PRC  statutory  consolidated  financial
     statements.  In accordance  with relevant laws and  regulations in the PRC,
     profits available for distribution are based on the statutory  consolidated
     financial  statements.  If BAK has foreign currency available after meeting
     its operational  needs,  BAK may make its profit  distributions  in foreign
     currency to the extent  foreign  currency is  available.  Otherwise,  it is
     necessary  to  obtain  approval  and  convert  such   distributions  at  an
     authorized bank.

12.  SIGNIFICANT CONCENTRATION

     The Company  grants credit to its  customers,  generally on an open account
     basis.  The  Company's  five  largest  customers  accounted  for  34.51% of
     revenues in fiscal  2005,  with no customer  individually  exceeded  10% of
     consolidated revenues. In fiscal 2004, the five largest customers comprised
     38.98% of revenues,  with only one customer  exceeding 10% of  consolidated
     revenues.

13.  RELATED PARTY TRANSACTIONS

     In October  2003,  the Company  acquired  intangible  assets from  entities
     controlled  by its Chairman and  controlling  shareholder  for  $3,866,088,
     effectively paid in cash. The  consideration  paid by the Company in excess
     of the  Chairman's  carrying cost of the  intangible  assets was charged to
     retained  earnings,  as a  distribution  to the Chairman,  resulting in the
     acquired  intangible  asset being recorded by the Company at the Chairman's
     original cost basis.

     Accounts  receivable - related  party in the  consolidated  balance  sheets
     consists  of  short  term   advances  made  by  the  Company  to  a  former
     shareholder.  The advances bore no interest,  had no formal repayment terms
     and were repaid on December 14, 2005.

     On September 30, 2004, BAK entered into an agreement with HFG International
     Ltd. ("HFG"),  in which HFG provided financial  consulting  services to the
     Company,  as  described  below,  for a  period  of  one  year  for a fee of
     $400,000.

     Under the  agreement,  HFG provided the Company  with,  among other things,
     advice on the  development  and  implementation  of a  restructuring  plan,
     resulting  in  an  organizational   structure  that  would  facilitate  the
     registration  of the Company's  securities,  assist the Company in engaging
     qualified  professionals  to assist in  facilitating  the  Company's  plan,
     assist the Company in identifying  potential merger  candidates,  supervise
     and train management in preparation for the registration of its securities,
     assist in the  preparation  of the necessary  documentation  and assist the
     Company with solicitation of equity financing.

     The fee was paid from the proceeds of the equity  capital  raised by HFG on
     behalf of the Company. In January 2005, the Company raised $17,000,000 from
     qualified  investors  in a private  placement  offering.  In  addition,  in
     September 2005, the Company raised $43,449,247 from qualified  investors in




                                      F-22
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)



13.  RELATED PARTY TRANSACTIONS (cont'd)

     a  private  placement  offering.  The fee to HFG  was  offset  against  the
     proceeds  from the  offerings  as a cost of raising  capital  in 2005.  The
     principal stockholder in HFG was also the former Chief Executive Officer of
     Medina Coffee,  Inc. The fee charged to the Company for the services of HFG
     was on  essentially  the same terms as those  charged by HFG for  financial
     consulting services performed for HFG's other clients.


14.  CONTINGENCIES AND COMMITMENTS

     A    Contingent liabilities

          1.   Land Use and Ownership Certificate:

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

               The Company has not yet obtained  the land use right  certificate
               and  government  approvals  relating to the  construction  of the
               Company's operating premises,  BAK Industrial Park. However,  the
               Company  is in the  process  of  applying  to obtain the land use
               right  certificate of approval.  The local government of Kuichong
               Township of Longgang District of Shenzhen has,  however,  granted
               permission  for  BAK to  commence  the  construction  of the  new
               production  plant  pending  a  decision  from the  bureau of city
               planning.  The  Company  anticipates  that  it will  receive  the
               approval from the bureau of city planning in January 2006.

               Management  believes,  under the  condition  that the  Company is
               granted a land use right certificate and related approvals,  that
               there  should be no legal  barriers  for the Company to obtain an
               ownership   certificate   for  the   premises   presently   under
               construction in BAK Industrial Park.  However,  in the event that
               the  Company  fails to  obtain  the land  use  right  certificate
               relating  to BAK  Industrial  Park and the  government  approvals
               required for the  construction of BAK Industrial  Park,  there is
               the risk that the buildings  constructed  will need to be vacated
               as illegitimate constructions.  However, management believes that
               this possibility,  while present, is very remote. As a result, no
               provision has been made in the consolidated  financial statements
               for this potential occurrence.

               The  Company  does  not   currently   insure  its   manufacturing
               facilities  since it has not yet  received  its  land  use  right
               certificate.  The Company  intends to procure such insurance once
               it has received the certificate.



                                      F-23
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


14.  CONTINGENCIES AND COMMITMENTS (cont'd)

     A    Contingent liabilities (cont'd)

          2.   Guarantees

               The  Company's  guarantees  at  September  30,  2005 and 2004 are
               summarized as follows:

                                                              2005        2004
                                                               $           $

               Guaranteed for Shenzhen Tongli,
               a non-related party                         3,603,502   1,208,153
               Guaranteed for Shenzhen Zhengda,
               a non-related party                         1,235,788   1,208,153
               Notes receivable discounted                   484,028      18,122
                                                           ---------   ---------

                 Total guarantees                          5,323,318   2,434,428
                                                           =========   =========

               The Company  factors notes and accounts  receivable  from time to
               time to  banks.  At the time of the  factoring,  all  rights  and
               privileges of holding the note are transferred to the banks.  The
               Company   removes   the  asset  from  its  books  and  records  a
               corresponding expense for the amount of the discount. The Company
               remains   contingently   liable  on  a  portion   of  the  amount
               outstanding in the event the note maker defaults

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

               BAK and Development and  Construction  (Group) Company Limited By
               Shares  ("Changchun  Co.") of  Changchun  Economic  &  Technology
               Development  District,  entered into a Cross-Guaranty  Agreement,
               dated February 20, 2004 (the "Agreement"),  pursuant to which the
               parties  were  obligated  to guaranty a specified  amount of each
               other's   indebtedness   to   specifically   identified   lending
               institutions.  On December 22, 2004,  the Company  received  from
               Changchun  Co. a letter  of  termination  pursuant  to which  the
               Agreement was deemed  terminated by Changchun Co. and the Company
               was relieved of all  obligations to guaranty any  indebtedness of
               Changchun Co. in the future.  The termination of the Agreement in
               no way affects  Changchun  Co.'s  continuing  guaranty of the BAK
               Indebtedness. As of September 30, 2005, ChangChun Jingkai had not
               guaranteed any indebtedness of the Company.


          3.   Social Insurance of BAK's Employees

               As described  in Note 4 (O),  BAK is required to cover  employees
               with various types of social  insurance.  Although all insurances
               have been purchased for management  employees,  BAK has not fully
               covered other employees. Owing to the transient nature of most of



                                      F-24
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


14.  CONTINGENCIES AND COMMITMENTS

     A    Contingent liabilities (cont'd)

               its  non-management  employees  and on the  basis  of  historical
               experience, management believes that BAK does not need to provide
               all employees with the required insurance.

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

     B.   Commitments

          1.   Capital Commitments

               BAK has outstanding  commitments under construction contracts for
               the   construction  of  factory,   office,   employee   residence
               buildings,  and  equipments  amounting to $3,916,021 at September
               30, 2005. These contracts are expected to be completed by January
               2006.

          2.   Lease Commitments

               BAK leases  various  factory  and office  space  under short term
               operating  leases and is obligated at September 30, 2005 for each
               of the next three fiscal years as follows:

                           2006 - $ 95,169
                           2007 - $ 72,017
                           2008 - $ 47,716


15.  CAPITAL CONTRIBUTIONS

     During  the year  ended  September  30,  2004,  the  existing  stockholders
     contributed  $10,875,918 in cash to the Company, which has been recorded as
     an increase to additional paid-in capital in the accompanying  consolidated
     financial statements.

     On January 20, 2005,  the Company  completed a stock  exchange  transaction
     with the stockholders of BAK International, as more fully described in Note
     2. Prior to and in connection  with the  completion  of the stock  exchange
     with BAK  International,  BAK  International  sold 8,600,433  shares of its
     common  stock  to new  investors  in a  private  placement,  as more  fully
     described in Note 1.



                                      F-25
<PAGE>
<TABLE>
<CAPTION>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


15.  CAPITAL CONTRIBUTIONS (cont'd)

     On September  16, 2005,  the Company  sold  7,899,863  shares of its common
     stock to new investors.  The Company granted certain registration rights to
     such  purchasers,  including  the  Company's  covenant  to  file  with  the
     Securities and Exchange Commission a registration  statement covering their
     shares. Under this transaction, the stockholders contributed $43,449,247 to
     the  Company,  which has been  recorded as an  increase in common  stock of
     $7,900 and an increase in additional  paid in capital of $43,441,347 in the
     accompanying  consolidated  financial  statements.  The Company also issued
     warrants  to  purchase  631,989  shares of its common  stock at an exercise
     price of $7.92 per share,  exercisable  for three  years  after the date of
     issuance, as a fee to certain persons in connection with this transaction.


16.  BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA

     The Company  currently  engages in the manufacture,  commercialization  and
     distribution  of a wide  variety of  standard  and  customized  lithium ion
     rechargeable batteries for use in a wide array of applications. The Company
     manufactures  five  types of Li-ion  rechargeable  batteries:  steel  cell,
     aluminum cell, cylindrical cell, polymer cell and industrial batteries. The
     Company's  products are sold to packing  plants  operated by third  parties
     primarily for use in mobile phones and other  electronic  devices.  Revenue
     and long-term asset components for 2005 and 2004 were as follows:

                                                          2005             2004
                                                    ---------------   --------------
                                                       $        %       $        %
     <S>                                              <C>      <C>     <C>      <C>

     Revenues by Product ($ in millions):
     Steel cell                                      56.96    55.89   37.97    59.56
     Aluminum cell                                   23.72    23.27   13.08    20.52
     Cylindrical cell                                 1.05     1.03     .26      .41
     Polymer cell                                      .02      .02    --       --
     Industrial battery                              20.17    19.79   12.44    19.51
                                                    ------   ------   -----   ------
     Total revenues                                 101.92   100.00   63.75   100.00
                                                    ------   ------   -----   ------

     Revenues by Geographic Area ($ in millions):
     Domestic sales - PRC                            72.35    70.99   43.36    68.02
     Foreign sales                                   29.57    29.01   20.39    31.98
                                                    ------   ------   -----   ------

     Total revenues                                 101.92   100.00   63.75   100.00
                                                    ------   ------   -----   ------
     Long-Term Assets ($ in millions)
     Domestic - PRC                                  67.34   100.00   45.19   100.00
                                                    ------   ------   -----   ------
</TABLE>

     The above  geographic  area data  consists  of  revenues  based on  product
     shipment destination and long-term assets are based on physical location.





                                      F-26
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


17.  INCOME TAXES

     The  reconciliation  between PRC income taxes at the statutory rate and the
     Company's  provision for income taxes at September 30, 2005 and 2004 are as
     follows:

                                                          2005          2004
                                                             $             $

                                                         (000's)       (000's)

     Computed tax at the PRC statutory rate of 15%          1,935         1,071
     Nondeductible Items                                     --              15
     PRC tax holiday and tax reduction                     (1,408)         (692)
                                                       ----------    ----------
     Current provision for income taxes                       527           394
                                                       ==========    ==========

     As of September  30, 2005 and 2004,  the Company had no deferred tax assets
     or liabilities and was not liable for any taxes in the United States or any
     other foreign jurisdictions outside the PRC.


18.  WARRANTY RESERVES

     Warranty  reserve  activity for the years ended September 30, 2005 and 2004
     is summarized as follows:

                                                           2005          2004
                                                             $             $

     Balance, beginning of year                           220,503        95,874
     Warranty expense                                   5,948,776     3,507,151
     Claims paid                                       (5,826,154)   (3,382,522)
                                                       ----------    ----------

     Balance, end of year                                 343,125       220,503
                                                       ==========    ==========


     Warranty  expense is included in cost of goods sold and  warranty  reserves
     are offset against  accounts  receivable in the  accompanying  consolidated
     financial statements.

19.  STOCK-BASED COMPENSATION

     In May 2005,  the Board of Directors  adopted the China BAK  Battery,  Inc.
     2005 Stock Option Plan ("Plan").  The Plan authorizes the issuance of up to
     4,000,000  shares of the Company's  common stock. The exercise price of the
     options  granted,  pursuant to the Plan, must be at least equal to the fair
     market value of the  Company's  common stock at the date of the grant.  The
     Plan will  generally  terminate on May 16, 2055.  Pursuant to the Plan, the
     Company issued 2,000,000  options with an exercise price of $6.25 per share
     on May 16, 2005. In accordance  with the vesting  provisions of the grants,
     the  options  will  become  vested  and  exercisable  under  the  following
     schedule:



                                      F-27
<PAGE>
<TABLE>
<CAPTION>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


19.  STOCK-BASED COMPENSATION (cont'd)


      Numbers of Shares          % of Shares Issued         Initial Vesting Date
          800,000                        40%                   July 1, 2007
          600,000                        30%                   January 1, 2008
          600,000                        30%                   July 1, 2008
        ---------                       ---
        2,000,000                       100%
        =========                       ===

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

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

                                                               2005           2004
                                                           -----------    -----------
<S>                                                        <C>            <C>

     Net income, as reported                               $12,374,377    $ 6,746,307

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

     Deduct: total stock-based compensation
     expense determined under the fair value, net of
     related tax effects                                    (1,068,243)          --
                                                           -----------    -----------

      Pro forma net income                                 $11,306,134    $ 6,746,307
                                                           ===========    ===========




                                      F-28
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)



19.  STOCK-BASED COMPENSATION (cont'd)

     Net income per common share:
         As reported - Basic                                     $0.32          $0.22
                       Diluted                                   $0.32          $0.22
         Pro forma -   Basic                                     $0.30          $0.22
                       Diluted                                   $0.29          $0.22
</TABLE>

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

     Dividend yield                                                        0.00%
     Expected volatility                                                  59.85%
     Risk-free interest rate                                               4.12%
     Expected life                                                       6 Years

     For the year ended September 30, 2004, no stock options were granted.


20.  SUBSEQUENT EVENTS

     A.   During  November and December 2005, the Company  refinanced two of its
          credit  facilities  totaling  $3.8  million,  and entered into two new
          credit  facilities  totaling $3.7 million with existing  lenders.  The
          four new  facilities  provide for monthly  interest  payments at fixed
          annual interest rates from 5.2% to 6.1%, with principal  repayments at
          maturities  during the second calendar  quarter of 2006. There were no
          changes in assets  pledged or payment  guarantees  from  September 30,
          2005 as a result of these new  facilities.  On January 11,  2006,  the
          Company  repaid in full one of its loans with a  principal  balance of
          $6.2 million at September 30, 2005.

     B.   Included in capital  commitments at September 30, 2005 (Note 14 (B)(1)
          is  $1,183,000 of equipment  that has been  purchased by a customer on
          behalf of the Company.  The Company  will hold title to the  equipment
          and will  reimburse  the customer by  offsetting  the  purchase  price
          against future product sales. The Company received  equipment totaling
          $778,750 in November 2005 and an  additional  $298,000 of equipment in
          December 2005. The Company  expects to receive the remaining  $106,250
          of equipment in 2006.


     C.   On January 11, 2006, the Company guaranteed an additional  $617,894 to
          a bank for  Shenzhen  Tongli,  a  non-related  party,  increasing  the
          Company's  maximum  exposure  for  guarantees  to $5.9 million on that
          date.


     D.   On January 10, 2006,  BAK  International  completed the formation of a
          new wholly owned  subsidiary,  BAK  Electronics  (Shenzhen) Co., Ltd.,
          focused on the research, development,  manufacture and distribution of
          rechargeable lithium polymer batteries.


                                      F-29
<PAGE>
<TABLE>
<CAPTION>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


21.  RESTATEMENT TO CONSOLIDATED FINANCIAL STATEMENTS

     A.   Based on comments from the  Securities  and Exchange  Commission,  the
          Company amended the consolidated  statement of cash flows for the year
          ended September 30, 2004, as summarized below:

                                                                   2004
                                                                   ----
                                                                       As previously
                                                        As restated      reported
                                                           (USD$)         (USD$)
                                                        -----------    ------------
         <S>                                            <C>            <C>
          Net cash provided from operating activities        88,874         209,689
          Net cash provided from investing activities   (38,333,208)    (38,333,200)
          Net cash provided from financing activities    40,785,680      40,664,762
          Effects of exchange rates changes on cash
                   and cash equivalents                         (95)           --
          </TABLE>

          The restatement had no effect on net income or net income per share.

     B.   Based  on  additional   comments  from  the  Securities  and  Exchange
          Commission,  the Company amended the consolidated  balance sheet as of
          September  30,  2004 and the  consolidated  statement  of  changes  in
          stockholders'  equity  for the year  ended  September  30,  2004.  The
          restatement was made to retroactively reflect that 1,152,458 shares of
          common stock of Medina Coffee, Inc. were outstanding immediately prior
          to the share  exchange and the resulting  recapitalization.  (See Note
          2).  The  effect  of the  restatement  was to  decrease  common  stock
          outstanding  as of the earliest date  presented  with a  corresponding
          increase to additional paid in capital.  The restatement had no effect
          on net income, net income per share or total  stockholders'  equity in
          the  accompanying  consolidated  financial  statements.  The following
          table  presents  the  effects of this  amendment  to the  consolidated
          financial statements:

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


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




                                      F-30
<PAGE>

                             China BAK Battery, Inc.
                   Notes to Consolidated Financial Statements
                           September 30, 2005 and 2004
                        (Amounts expressed in US Dollars)


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


     C.   Based on further comments from the Securities and Exchange Commission,
          the Company amended the  consolidated  statement of operations for the
          year ended  September 30, 2004. The restatement was made to reclassify
          depreciation  and  amortization   expense  from  a  separate  item  in
          operating  expenses  into cost of goods  sold,  selling  expenses  and
          general and administrative expenses. The effect of the restatement was
          to decrease gross profit.  The  restatement had no effect on operating
          income,  net  income or net  income per  share.  The  following  table
          presents the effects of this amendment to the  consolidated  statement
          of operations:

                                                        For the Year Ended
                                                        September 30, 2004
                                                   -----------------------------
                                                                   As previously
                                                    As restated      reported
                                                       (USD$)          (USD$)
                                                   -------------   -------------
          Gross Profit                                13,824,384      15,460,355