Document:

Exhibit 10.21

EXECUTIVE SALARY CONTINUATION AGREEMENT

          This Agreement is made and entered into this _01_ day of _Jan_, 2006, by and between United Security Bank, a California banking corporation (the “Employer”), and William F. Scarborough, an individual residing in the State of California (hereinafter referred to as the “Executive”).  The purpose of this Agreement is to provide specified benefits to the Executive, a member of a select group of management or highly compensated employees who contribute materially to the continued growth, development, and future business success of the Employer.

RECITALS

          WHEREAS, the Executive is an employee of the Employer and is serving as its William Scarborough Officer;

          WHEREAS, the Executive’s experience and knowledge of the affairs of the Employer and the banking industry are extensive and valuable;

          WHEREAS, it is deemed to be in the best interests of the Employer to provide the Executive with certain salary continuation benefits, on the terms and conditions set forth herein, in order to reasonably induce the Executive to remain in the Employer’s employment; and

          WHEREAS, the Executive and the Employer wish to specify writing the terms and conditions upon which this additional compensatory incentive will be provided to the Executive or to the Executive’s designated beneficiaries, as the case may be;

          NOW, THEREFORE, in consideration of the services to be performed in the future, as well as the mutual promises and covenants contained herein, the Executive and the Employer agree as follows:

AGREEMENT

1.   Terms and Definitions.

          1.1.   Administrator.  The Employer shall be the “Administrator” and, solely for the purposes of ERISA, the “fiduciary” of this Agreement where a fiduciary is required by ERISA.

          1.2.   Annual Benefit.  The term “Annual Benefit” shall mean an annual sum of fifty thousand dollars ($50,000) multiplied by the Applicable Percentage (defined below) and then reduced to the extent required: (i) under the other provisions of this Agreement; (ii) by reason of the lawful order of any regulatory agency or body having jurisdiction over the Employer; and (iii) in order for the Employer to properly comply with any and all applicable state and federal laws, including, but not limited to, income, employment and disability income tax laws (e.g., FICA, FUTA, SDI).

          1.3.   Applicable Percentage.  The term “Applicable Percentage” shall mean that percentage listed on Schedule “A” attached hereto which is adjacent to the number of complete Year of Service provided by Executive for or on behalf of the Employer as an employee which have elapsed starting from the Effective Date of this Agreement and ending on the date the Executive’s employment is terminated for purposes of this Agreement.  In the event the Executive’s employment with the Employer is terminated other than by reason of death, disability, termination for cause or Retirement on the part of the Executive, the Executive shall be deemed for purposes of determining the number of complete years to have completed a year of service in its entirety for any partial year of service after the last anniversary date of the Effective Date during which the
Executive’s employment is terminated, provided that in no event shall the Executive be deemed to have completed a year of service for the partial year that occurs prior to the first anniversary date of this Agreement.

          1.4.   Beneficiary.  The term “beneficiary” or “designated beneficiary” shall mean the person or persons whom the Executive shall designate in a valid Beneficiary Designation, a copy of which is attached hereto as Exhibit “B”, to receive the benefits provided hereunder.  A Beneficiary Designation shall be valid only if it is in the form attached hereto and made a part hereof and is received by the Administrator prior to the Executive’s death.  The Executive’s beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as Beneficiary and the marriage is subsequently dissolved.  Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled.  The Plan
Administrator shall be entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by the Plan Administrator prior to the Executive’s death.

          1.5.   The Code.  The “Code” shall mean the Internal Revenue Code of 1986, as amended (the “Code”).

          1.6.   Disability/Disabled.  The term “Disability” or “Disabled” shall mean either that the Executive is (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan sponsored by the Employer.

          1.7.   Effective Date.  The term “Effective Date” shall mean the date upon which this Agreement was entered into by the parties, as first written above.

          1.8.   ERISA. The term “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

          1.9.   Key Employee.  The term “Key Employee” means a key employee (as defined in Section 416(i) of the Code without regard to paragraph 5 thereof) of the Bank if any stock of the Bank is publicly traded on an established securities market or otherwise.

          1.10.   Plan Year. The term “Plan Year” shall mean the Employer’s calendar year.

          1.11.   Retirement.  The term “Retirement” or “Retires” shall refer to the date on which the Executive attains the age of at least sixty-three (63) and acknowledges in writing to the Employer to be the last day he will provide any significant personal services, whether as an employee, director or independent consultant or contractor, to the Employer. For purposes of this Agreement, the phrase “significant personal services” shall mean more than ten (10) hours of personal services rendered to one or more individuals or entities in any thirty (30) day period.

          1.12.   Separation from Service.  The term “Separation from Service” means the termination of the Executive’s employment with the Employer for reasons other than death or Disability.  Whether a Separation from Service takes place is determined based on the facts and circumstances surrounding the termination of the Executive’s employment and whether the Employer and the Executive intended for the Executive to provide significant services for the Employer following such termination.  A termination of employment will not be considered a Separation from Service if:

	
  
 
  	
  
          (a)          the   Executive continues to provide services as an employee of the Employer at an   annual rate that is twenty percent (20%) or more of the services rendered, on   average, during the immediately preceding three full calendar years of   employment (or, if employed less than three years, such lesser period) and   the annual remuneration for such services is twenty percent (20%) or more of   the average annual remuneration earned during the final three full calendar   years of employment (or, if less, such lesser period), or
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (b)          the   Executive continues to provide services to the Employer in a capacity other   than as an employee of the Employer at an annual rate that is fifty percent   (50%) or more of the services rendered, on average, during the immediately   preceding three full calendar years of employment (or if employed less than   three years, such lesser period) and the annual remuneration for such   services is fifty percent (50%) or more of the average annual remuneration earned   during the final three full calendar years of employment (or if less, such   lesser period).
  

          1.13.   Surviving Spouse. The term “Surviving Spouse” shall mean the person, if any, who shall be legally married to the Executive on the date of the Executive’s death.

          1.14.   Termination for Cause.  The term “Termination for Cause” shall mean the Separation of Service of the Executive upon the occurrence of any of the following events:

               (i)   the Executive is convicted of illegal activity by a court of competent jurisdiction or pleads guilty to or nolo contendere to illegal activity, which activity materially adversely affects the Employer’s reputation in the community or which evidences the lack of the Executive’s fitness or ability to perform the Executive’s duty as determined by the Board of Directors in good faith;

               (ii)   the Executive has committed any illegal or dishonest act which would cause termination of coverage under the Employer’s Bankers’ Blanket Bond as to the Executive, as distinguished from termination of coverage as to the Employer as a whole;

               (iii)  the Executive materially fails to perform, or habitually neglects, the Executive’s duties or commits a material act of malfeasance or misfeasance in connection therewith; or 

               (iv)   an action is commenced by any bank regulatory agency having jurisdiction, to remove or suspend the Executive from office, or a cease and desist order under 12 U.S.C. 1818(b) or any similar Federal or state statute is issued against the Executive or the Employer which calls for the Executive’s suspension or removal from office.

          1.15.   Year of Service.  The term “Year of Service” means each twelve consecutive month period beginning on the Effective Date and any twelve (12) month anniversary thereof, during the entirety of which time the Executive is an employee of Employer.

2.   Scope, Purpose and Effect.

          2.1.   Contract of Employment.  Although this Agreement is intended to provide the Executive with an additional incentive to remain in the employ of the Employer, this Agreement shall not be deemed to constitute a contract of employment between the Executive and the Employer nor shall any provision of this Agreement restrict or expand the right of the Employer to terminate the Executive’s employment. This Agreement shall have no impact or effect upon any separate written employment agreement which the Executive may have with the Employer, it being the parties’ intention and agreement that unless this Agreement is specifically referenced in said employment agreement (or any modification thereto), this Agreement (and the Employer’s obligations hereunder) shall stand separate and apart and shall have no effect upon, nor be affected by, the terms and provisions of said
employment agreement.

          2.2.   Fringe Benefit.  The benefits provided by this Agreement are granted by the Employer as a fringe benefit to the Executive and are not a part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. The Executive has no option to take any current payments or bonus in lieu of the benefits provided by this Agreement.

3.   Payments Upon or After Retirement.

          3.1.   Payments  Upon Retirement.  If the Executive shall remain in the continuous employment of the Employer until Retirement, the Executive shall be entitled to be paid the Annual Benefit, with the Applicable Percent equal to 100% for a period of twelve (12) years, in equal monthly installments, with each installment to be paid on the first day of each month, beginning with the month following the month in which the Executive Retires or upon such later date as may be mutually agreed upon in writing by the Executive and the Employer in advance of said Retirement Date, subject to the deferral of distributions condition in Section 11.14 herein if Executive is a Key Employee.  

          3.2.   Payments in the Event of Death After Retirement.  The Employer agrees that if the Executive Retires, but shall die before receiving all of the monthly payments described in Section 3.1 herein, the Employer will make the remaining monthly payments, undiminished and on the same schedule as if the Executive had not died, to the Executive’s designated beneficiary.  If the Executive dies without a valid beneficiary designation, then the benefits shall be made to the personal representative of the Executive’s estate for the benefit of the Executive’s estate.

4.   Payments in the Event Death or Disability Occurs Prior to Retirement.

          4.1.   Payments in the Event of Death Prior to Retirement.  In the event the Executive should die while actively employed by the Employer at any time after the Effective Date of this Agreement, but prior to Retirement, the Employer agrees to pay the Annual Benefit with the Applicable Percentage equal to 100% for a period of twelve (12) years in equal monthly installments, with each installment to be paid commencing upon the later of (i) the first of the month following Executive’s death or (ii) within thirty (30) days following the date of receipt by the Bank of the Executive’s death certificate to the Executive’s designated beneficiary.  If the Executive dies without a valid beneficiary designation, then the benefits shall be made to the personal representative of the Executive’s estate for the benefit of the Executive’s estate.

          4.2.   Payments in the Event of Disability Prior to Retirement. In the event the Executive becomes Disabled while actively employed by the Employer at any time after the date of this Agreement but prior to Retirement, the Executive shall: (i) continue to be treated during such period of Disability as being gainfully employed by the Employer but shall not add applicable Years of Service for the purpose of determining the Annual Benefit; and (ii) be entitled to be paid the Annual Benefit, with the Applicable Percentage as set forth in Schedule A and as determined by the applicable years of service at the time of disability, for twelve (12) years in equal monthly installments, with each installment to be paid on the first day of each month, beginning with the month following the earlier of (1) the month in which the Executive attains sixty-three (63) years of age; or (2) the date upon which
the Executive is no longer entitled to receive Disability benefits under the Executive’s principal Disability insurance policy and does not, at such time, return to and thereafter fulfill the responsibilities associated with the employment position held with the Employer prior to becoming Disabled by reason of such Disability continuing.  

          The Employer agrees that if (i) the Executive becomes Disabled while actively employed by the Employer at any time after the date of this Agreement but prior to Retirement, (ii) Employer has started to distribute payments to Executive under the first paragraph of this Section 4.2 and (iii) Executive dies before receiving all of the monthly payments described in the first paragraph of this Section 4.2, then the Employer will make the remaining monthly payments, undiminished and on the same schedule as if the Executive had not died, to the Executive’s designated beneficiary.  If the Executive dies without a valid beneficiary designation, then the benefits shall be made to the personal representative of the Executive’s estate for the benefit of the Executive’s estate.

          Notwithstanding the foregoing, in the event the Executive should die while actively or gainfully employed by the Employer at any time after the Effective Date of this Agreement and prior to Retirement, the payments provided in Section 4.1 herein shall be paid in lieu of the payments provided in the first paragraph of this Section 4.2, provided that the Executive or his legal representative shall have not elected to take the benefits provided by Section 5 herein and payments provided in the first paragraph of this Section 4.2 have not commenced.

5.   Payments in the Event Employment is Terminated Other than by Death, Disability, Termination for Cause or Retirement.

          As indicated in Section 2 herein, the Employer reserves the right to terminate the Executive’s employment, with or without cause but subject to any written employment agreement which may then exist, at any time prior to the Executive’s Retirement.  In the event that the employment of the Executive shall be terminated for any reason, including voluntary termination by the Executive, but other than by reason of (i) Disability except as provided in the last paragraph of Section 4.2, (ii) death, (iii) Termination for Cause, or (iv) Retirement, the Executive shall be entitled to be paid the Annual Benefit, with the Applicable Percentage as set forth in Schedule A and as determined by the applicable Years of Service at the time of Executive’s termination of employment with the Employer, for a period of twelve (12) years in equal monthly installments, with each installment to be paid on the
first day of each month, beginning with the month following the later of (i) the Executive’s Separation of Service from Employer or (ii) the Executive attaining age sixty-three (63), subject to the deferral of distributions condition in Section 11.14 herein if Executive is a Key Employee.

          The Employer agrees that if the Executive is entitled to benefits under the first paragraph of this Section 5, but dies before receiving all of the monthly payments described in the first paragraph of this Section 5, the Employer will make the remaining monthly payments, undiminished and on the same schedule as if the Executive had not died, to the Executive’s designated beneficiary.  If the Executive dies without a valid beneficiary designation, then the benefits shall be made to the personal representative of the Executive’s estate for the benefit of the Executive’s estate.

          Executive agrees that the payment of benefits pursuant to this Section 5 to the extent Executive is entitled to such benefits is in lieu of any other benefits under this Agreement.

6.   Termination for Cause.

          Notwithstanding anything to the contrary, in the event the termination of employment of the Executive is Termination for Cause as defined in Section 1.14 herein, the Executive shall not be entitled to any benefits pursuant to this Agreement.

7.   No Ownership Rights to the Employer’s Assets.

          The Employer reserves the right to determine, in its sole and absolute discretion, whether, to what extent and by what method, if any, to provide for the payment of the amounts which may be payable to the Executive or the Executive’s beneficiaries under the terms of this Agreement (“Benefits”). The rights of the Executive or any beneficiary of the Executive under this Agreement shall be solely those of an unsecured creditor of the Employer.

          In the event that the Employer, in its sole and absolute discretion, elects to acquire an insurance policy, an annuity or any other asset to recoup the costs or any portion thereof of the Benefits, then such insurance policy, annuity or other asset shall not be deemed to be held under any trust for the benefit of the Executive or his beneficiaries or to be security for the performance of the obligations of the Employer under this Agreement, but shall be, and remain, a general unpledged, unrestricted asset of the Employer.  The Executive and his beneficiaries shall have no rights whatsoever with respect to, or any claim against, any such insurance policy, annuity or other asset. In connection with the Employer electing to acquire any such insurance policy or annuity, the Executive agrees to cooperate to facilitate such acquisition, and pursuant thereto shall execute such documents and undergo such
medical examinations or tests as the Employer may reasonably request.

8.   Claims Procedure.

          An Executive or Beneficiary (“claimant”) who has not received benefits under the Agreement that he or she believes should be distributed shall make a claim for such benefits as follows:

          8.1.   Written Claim.  The claimant initiates a claim by submitting to the Plan Administrator a written claim for the benefits.  If such a claim relates to the contents of a notice received by the claimant, the claim must be made within sixty days after such notice was received by the claimant.  All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred.  The claim must state with particularity the determination desired by the claimant.

          8.2.   Timing of Plan Administrator Response.  The Plan Administrator shall respond to such claimant within 90 days after receiving the claim.  If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required.  The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision.

          8.3.   Notice of Decision.  If the Plan Administrator denies part or all of the claim, the Plan Administrator shall notify the claimant in writing of such denial.  The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant.  The notification shall set forth:

	
            (a)          The   specific reasons for the denial;
  
	
  
          (b)          A   reference to the specific provisions of the Agreement on which the denial is   based;
  
	
  
          (c)          A   description of any additional information or material necessary for the   claimant to perfect the claim and an explanation of why it is needed;
  
	
  
          (d)          An   explanation of the Agreement’s review procedures and the time limits   applicable to such procedures; and
  
	
  
          (e)          A   statement of the claimant’s right to bring a civil action following an   adverse benefit determination on review.
  

          8.4.   Review Procedure.  If the Plan Administrator denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Plan Administrator of the denial, as follows:

          8.5.   Written Request for Review of Denial.  To initiate the review, the claimant, within 60 days after receiving the Plan Administrator’s notice of denial, must file with the Plan Administrator a written request for review.

          8.6.   Additional Submissions – Information Access.  The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim.  The Plan Administrator shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant’s claim for benefits.

          8.7.   Considerations on Review.  In considering the review, the Plan Administrator shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

          8.8.   Timing of Plan Administrator Response.  The Plan Administrator shall respond in writing to such claimant within 60 days after receiving the request for review.  If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional period is required.  The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision.

          8.9.   Notice of Decision of Review.  The Plan Administrator shall notify the claimant in writing of its decision on review.  The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant.  The notification shall set forth:

	           (a)          The specific reasons for the denial; 

	
  
          (b)          A   reference to the specific provisions of the Agreement on which the denial is   based;
  
	
  
          (c)          A   statement that the claimant is entitled to receive, upon request and free of   charge, reasonable access to, and copies of, all documents, records and other   information relevant  to the   claimant’s claim for benefits; and
  
	
            (d)          A   statement of the claimant’s right to bring a civil action.
  

9.   Status of an Unsecured General Creditor.

          Notwithstanding anything contained herein to the contrary: (i) neither the Executive nor the Executive’s beneficiary shall have any legal or equitable rights, interests or claims in or to any specific property or assets of the Employer; (ii) none of the Employer’s assets shall be held in or under any trust for the benefit of the Executive or the Executive’s beneficiary or held in any way as security for the fulfillment of the obligations of the Employer under this Agreement; (iii) all of the Employer’s assets shall be and remain the general unpledged and unrestricted assets of the Employer; (iv) the Employer’s obligation under this Agreement shall be that of an unfunded and unsecured promise by the Employer to pay money in the future; and (v) the Executive and the Executive’s beneficiary shall be unsecured general creditors with respect to any benefits which may be payable
under the terms of this Agreement.

10.   Covenant Not to Interfere.

          The Executive agrees not to take any action which prevents the Employer from collecting the proceeds of any life insurance policy which the Employer may happen to own at the time of the Executive’s death and of which the Employer is the designated beneficiary.

11.   Miscellaneous.

          11.1.   Opportunity to Consult with Independent Counsel.  The Executive acknowledges that he has been afforded the opportunity to consult with independent counsel of his choosing regarding both the benefits granted to him under the terms of this Agreement and the terms and conditions which may affect the Executive’s right to these benefits.  The Executive further acknowledges that he has read, understands and consents to all of the terms and conditions of this Agreement, and that he enters into this Agreement with a full understanding of its terms and conditions.

          11.2.   Arbitration of Disputes.  All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Employer in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. (“JAMS”), located in location nearest to Fresno, California.  In the event JAMS is unable or unwilling to conduct the arbitration provided for under the terms of this Section, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association (“AAA”), located in or nearest to Fresno, California, shall conduct
the binding arbitration referred to in this Section.  Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary).  In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations.  The arbitration shall be subject to such rules of procedure used or established by JAMS, or if there are none, the rules of procedure used or established by AAA.  Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof.  The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted
consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure.  Any arbitration hereunder shall be conducted in Southern California, unless otherwise agreed to by the parties.

          11.3.   Attorneys’ Fees. In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto, arising out of or relating to this Agreement or the breach hereof, or the interpretation hereof, the prevailing party shall be entitled to recover from the losing party reasonable expenses, attorneys’ fees and costs incurred in connection therewith or in the enforcement or collection of any judgment or award rendered therein.  The “prevailing party” means the party determined by the arbitrator(s) or court, as the case may be, to have most nearly prevailed, even if such party did not prevail in all matters, not necessarily the one in whose favor a judgment is rendered.

          11.4.   Notice.  Any notice required or permitted of either the Executive or the Employer under this Agreement shall be deemed to have been duly given, if by personal delivery, upon the date received by the party or its authorized representative; if by facsimile, upon transmission to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the party transmitting the facsimile and upon reasonable confirmation of such transmission; and if by mail, on the third day after mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party.

	
  
 
  	
  
If to the   Employer:
  
	
  
 
  	
  
 
  
	
  
 
  	
  
United   Security Bank
  
	
  
 
  	
  
1525 East   Shaw Avenue Suite 200
  
	
  
 
  	
  
Fresno, California   93710
  
	
   
  	
  
Attention:   Dennis R. Woods
  
	
  
 
  	
  
Chairman of   the Board
  
	
  
 
  	
  
 
  
	
  
 
  	
  
If to the   Executive:
  
	
  
 
  	
  
 
  
	
  
 
  	
  
William F.   Scarborough
  
	
  
 
  	
  
c/o United   Security Bank
  
	
  
 
  	
  
2151 West   Shaw Avenue
  
	
  
 
  	
  
Fresno,   California 93711
  

          11.5.   Assignment. Neither the Executive nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, hypothecate, modify or otherwise encumber any part or all of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such amounts be: (i) subject to seizure by any creditor of any such beneficiary, by a proceeding at law or in equity, for the payment of any debts, judgments, alimony or separate maintenance obligations which may be owed by the Executive or any designated beneficiary; or (ii) transferable by operation of law in the event of bankruptcy, insolvency or otherwise.  Any such attempted assignment or transfer shall be void and shall terminate this Agreement, and the Employer shall thereupon have no further liability hereunder.

          11.6.   Binding Effect/Merger or Reorganization.  This Agreement shall be binding upon and inure to the benefit of the Executive and the Employer and, as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns.  Accordingly, the Employer shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person agrees to assume and discharge the obligations of the Employer under this Agreement.  Upon the occurrence of such event, the term “Employer” as used in this Agreement shall be deemed to refer to such surviving or successor firm, person, entity or corporation.

          11.7.   Nonwaiver.  The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this Agreement shall not be a waiver of such term(s) or condition(s) or of that party’s right thereafter to enforce each and every term and condition of this Agreement.

          11.8.   Partial Invalidity.  If any term, provision, covenant or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity.

          11.9.   Entire Agreement.  This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the subject matter of this Agreement and contains all of the covenants and agreements between the parties with respect thereto.  Each party to this Agreement acknowledges that no other representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding on either party.

          11.10.   Modifications.  Any modification of this Agreement shall be effective only if it is in writing and signed by each party or such party’s authorized representative.

          11.11.   Section Headings.  The Section headings used in this Agreement are included solely for the convenience of the parties and shall not affect or be used in connection with the interpretation of this Agreement.

          11.12.   No Strict Construction.  The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person.

          11.13.   Governing Law.  The laws of the State of California, other than those laws denominated choice of law rules, and, where applicable, the rules and regulations of the Federal Deposit Insurance Corporation or any other regulatory agency or governmental authority having jurisdiction over the Employer, shall govern the validity, interpretation, construction and effect of this Agreement.

          11.14.   Restriction on Timing of Distribution.  Notwithstanding any provision of this Agreement to the contrary, if the Executive is considered a Key Employee at the time of Separation from Service of the Employer in accordance with Section 409A of the Code, benefit distributions that are made upon Separation from Service may not commence earlier than six (6) months after the date of such Separation from Service.  Therefore, in the event this Section 11.14 is applicable to the Executive, any distribution or series of distributions to be made due to a Separation from Service shall commence no earlier that the first day of the seventh month following the Separation from Service.  

          11.15.   Distributions.  Upon Income Inclusion Under Section 409A of the Code.  Upon the inclusion of any portion of the accrued liability recorded on the Employer’s books into the Executive’s income as a result of the failure of this non-qualified deferred compensation plan to comply with the requirements of Section 409A of the Code, to the extent such tax liability can be covered by the Executive’s accrued liability, a distribution shall be made as soon as is administratively practicable following the discovery of the plan failure.

          11.16.   Unfunded Agreement for ERISA Purposes.  This Agreement shall be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended from time to time.

          11.17.   Suicide or Misstatement.  No benefits shall be distributed if the Executive commits suicide within two years after the Effective Date of this Agreement, or if an insurance company which issued a life insurance policy covering the Executive and owned by the Employer denies coverage (i) for material misstatements of fact made by the Executive on an application for such life insurance, or (ii) for any other reason.

IN WITNESS WHEREOF, the Employer and the Executive have executed this Agreement on the date first above-written in the City of Fresno, Fresno County, California.

	
  
United   Security Bank
  	
  
 
  	
  
William F.   Scarborough
  
	
  
“Employer”
  	
  
 
  	
  
“Executive”
  
	
  
 
  	
  
 
  	
  
 
  
	  
	  
	  

	
  

  	
  
 
  	
  

  
	
  
Dennis R.   Woods
  	
  
 
  	
  
 
  
	
  
Chairman of   the Board
  	
  
 
  	
  
 
  

SCHEDULE A

	
  
NUMBER OF COMPLETE
  	
  
 
  	
  
APPLICABLE
  	
   
 
	
  
YEARS OF SERVICE
  	
  
 
  	
  
PERCENTAGE
  	
   
 
	
   
 	
   
  	
   
 	
   
 
	
  
                    1
  	
  
 
  	
  
8   1/3%                
  	
   
 
	
  
 
  	
  
 
  	
   
 	
   
 
	
  
                    2
  	
  
 
  	
  
16   2/3%                
  	
   
 
	
  
 
  	
  
 
  	
   
 	
   
 
	
  
                    3
  	
  
 
  	
  
25%                
  	
   
 
	
   
  	
  
 
  	
   
 	
   
 
	
  
                    4
  	
  
 
  	
  
33   1/3%                
  	
   
 
	
  
 
  	
  
 
  	
   
 	
   
 
	
  
                    5
  	
  
 
  	
  
41   2/3%                
  	
   
 
	
  
 
  	
  
 
  	
   
 	
   
 
	
  
                    6
  	
  
 
  	
  
50%                
  	
   
 
	
   
  	
  
 
  	
   
 	
   
 
	
  
                    7
  	
  
 
  	
  
58   1/3%                
  	
   
 
	
  
 
  	
  
 
  	
   
 	
   
 
	
  
                    8
  	
  
 
  	
  
66   2/3%                
  	
   
 
	
  
 
  	
  
 
  	
   
 	
   
 
	
  
                    9
  	
  
 
  	
  
75%                
  	
   
 
	
   
  	
  
 
  	
   
 	
   
 
	
  
                    10
  	
  
 
  	
  
83   1/3%                
  	
   
 
	
  
 
  	
  
 
  	
   
 	
   
 
	
  
                    11
  	
  
 
  	
  
91   2/3%                
  	
   
 
	
  
 
  	
  
 
  	
   
 	
   
 
	
  
                    12   or more
  	
  
 
  	
  
100%                
  	
   
 

SCHEDULE B

BENEFICIARY DESIGNATION

	
  
TO:
  	
  
The   Administrator of United Security Bank, 

Executive Salary Continuation   Agreement
  

                    Pursuant to the provisions of my Executive Salary Continuation Agreement with United Security Bank, permitting the designation of a beneficiary or beneficiaries by a participant, I hereby designate the following persons and entities as primary and secondary beneficiaries of any benefit under said Agreement payable by reason of my death:

NOTE: To name a trust as beneficiary, please provide the name of the trustee and the exact date of the trust agreement.

In the event the primary beneficiary is not the spouse of the Executive, the spouse of the Executive will need to sign the Spousal Consent below and such signature must be notarized.

	
  
Primary   Beneficiary:
  	
  
 
  	
  
 
  
	
   
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  

  	
  

  	
  

  
	
  
Name
  	
  
Address
  	
  
Relationship
  
	
  
 
  	
  
 
  	
  
 
  
	
  
Secondary   (Contingent) Beneficiary:
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  

  	
  

  	
  

  
	
  Name
  	
  
Address
  	
  
Relationship
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  

  	
  

  	
  

  
	
  
Name
  	
  
Address
  	
  
Relationship
  

THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED. ANY PRIOR DESIGNATION OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES IS HEREBY REVOKED.

The Administrator shall pay all sums payable under the Agreement by reason of my death to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named beneficiary survives me, then the Administrator shall pay all amounts in accordance with the terms of my Executive Salary Continuation Agreement.  In the event that a named beneficiary survives me and dies prior to receiving the entire benefit payable under said Agreement then and in that event, the remaining unpaid benefit payable according to the terms of my Executive Salary Continuation Agreement shall be payable to the personal representatives of the estate of said beneficiary who survived me but died prior to receiving the total benefit provided by my Executive Salary Continuation Agreement.

	
  
 
  	
  
 
  	
  
 
  	
  
 
  	  

	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  

  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  
William F.   Scarborough
  
	
  
Dated:
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  

  	
  
 
  	
  
 
  	
  
 
  

CONSENT OF THE EXECUTIVE’S SPOUSE

TO THE ABOVE BENEFICIARY DESIGNATION:

I, ________________________, being the spouse of William F. Scarborough, after being afforded the opportunity to consult with independent counsel of my choosing, do hereby acknowledge that I have read, agree and consent to the foregoing Beneficiary Designation which relates to the Executive Salary Continuation Agreement entered into by my spouse on ______________, 2006. I understand that the above Beneficiary Designation adversely affects my community property interest in the benefits provided for under the terms of the Executive Salary Continuation Agreement.  I understand that I have been advised to consult with an attorney of my choice prior to executing this consent, so that such attorney can explain the effects of this consent.

Dated:_____________, 2006

	
  
 
  	
  

  	
  
 
  
	
   
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  

  	
  
,  Spouse
  	
  
 
  

ACKNOWLEDGEMENT

STATE OF CALIFORNIA)
                                         )ss
 COUNTY OF FRESNO)

          On this ______ day of ___________, 2006, before me ___________________, a Notary Public in and for said State, personally appeared ___________________, personally known to me to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or entity upon behalf of which the person acted, executed the instrument.

	
  
___________________________________________________
  
	
   
 
	
  
___________________________, Notary Public
  
	
   
 
	
  Commission expiration: __________, 20__EXHIBIT 10.4

                             SUBSCRIPTION AGREEMENT

BAK International, Ltd.
BAK Industrial Zone
Atou Village
Kui Chong Town
Lunggang District
Shenzhen, China 518119
Attention:  Li Xiang Qian, President

Ladies and Gentlemen:

         The   undersigned   subscriber   ("Subscriber")   hereby  tenders  this
Subscription  Agreement (this "Agreement") in accordance with and subject to the
terms and conditions set forth herein:

1.       Subscription.

         1.1 Subscriber  hereby subscribes for and agrees to purchase the number
of  shares  (the  "Shares")  of  common  stock  (the  "Common  Shares"),  of BAK
International,  Ltd., a Hong Kong corporation (the "Company"),  indicated on the
signature page attached hereto at the purchase price set forth on such signature
page (the  "Purchase  Price").  Subscriber  has made payment by wire transfer of
funds in accordance with instructions from the Company in the full amount of the
Purchase  Price of the Common Shares for which  Subscriber is  subscribing  (the
"Payment").

         1.2 This  Agreement  is part of an  offering  of  Common  Shares  being
conducted by the Company (the "Offering").  Under the terms of the Offering, the
Company seeks to raise a minimum of $8 million (USD) (the "Minimum Offering") up
to a maximum of $17 million (USD) (the  "Maximum  Offering") ( proceeds from the
Minimum  and  Maximum  Offerings  being  collectively  referred to herein as the
"Gross  Proceeds  Amount")  based on an  Offering  price of $___ per share.  The
Company  agrees that it shall not  undertake  any other  financings  (other than
acquisitions  utilizing  capital stock of the Company or the Public company,  as
hereinafter  defined)  involving its Equity Common Shares (as defined  below) on
terms more favorable than those in the Offering until thirty (30) days after the
effectiveness  of the  Registration  Statement  (as that term is defined  below)
covering all of the Common  Shares,  without the prior  written  approval of the
holders of a majority of the Common Shares subscribed for in this Offering.  The
term "Equity  Common  Shares" as used herein shall mean all capital stock of the
Company  or the  Public  Company  (as  hereinafter  defined),  plus all  rights,
warrants, options,  convertible Common Shares or Public Company common shares or
indebtedness,  exchangeable  Common  Shares or Public  Company  common shares or
indebtedness,  or other rights, exercisable for or convertible into, directly or
indirectly, capital stock of the Company or the Public Company.  Notwithstanding
the above,  "Equity  Common  Shares"  shall not include any Common Shares of the
Company or common shares of the Public Company issued  pursuant to any incentive
or stock  option  plan of the  Company or the  Public  Company  approved  by the
shareholders or the board of directors of the Company or the Public Company.

         1.3 Subscriber  understands that it will not earn interest on any funds
held by the Company prior to the date of closing of the Offering. The funds will
be held in escrow  pending the closing of the Offering.  Attached as Exhibit "A"
hereto is the form of Escrow Agreement (the "Escrow Agreement") that will govern
the  maintenance of funds until the sooner of the closing of the Offering or the
expiration  thereof.  The  Closing  Date of the  Offering  is referred to as the
"Closing  Date." The Closing  shall occur on or before  December 28,  2004.  The
Company shall have the right to a one time 45 day extension of the Closing Date.
If the Offering is not closed by said date all Gross  Offering  Proceeds then in
escrow  shall be returned to the  Subscriber.  The closing  shall occur upon the
satisfaction  of the following  conditions  and in the following  sequence:  (a)
confirmation from the Escrow Agent, as identified in the Escrow Agreement,  that
the proceeds from the Minimum Offering are on deposit;  (b) participation by the
each of the  subscribers  to the Offering in that certain  exchange  transaction
(the  "Exchange"),  whereby each  subscriber and all other  shareholders  of the
Company will exchange  their Common  Shares for the  identical  number of shares
(the "Public Company Shares") of a corporation domiciled in the United States of
America  which has  common  equity  securities  eligible  for  quotation  on the

                                       1
<PAGE>

Over-the-Counter  Bulletin  Board  (the  "Public  Company");  and (c) the Public
Company files a  registration  statement on a suitable  form (the  "Registration
Statement")  with the U.S.  Securities  and Exchange  Commission to register the
Public  Company Shares held by the  subscribers to the Offering.  Gross Offering
Proceeds will not be released to either the Company or the Public  Company until
such  time as each of the  forgoing  has been  completed.  Certificates  will be
issued in the name of each such subscriber, and the name of such subscriber will
be registered on the stock  transfer  books of the Public  Company as the record
owner of Public  Company  Shares.  The Public  Company will promptly  thereafter
issue to each  subscriber a stock  certificate  for the Public Company Shares to
which it is entitled.

         1.4 Subscriber  hereby agrees to be bound hereby upon (i) execution and
delivery to the Company of the signature page to this Agreement and (ii) written
acceptance  on the  Closing  Date by the Company of  Subscriber's  subscription,
which shall be confirmed by faxing to the  Subscriber the signature page to this
Agreement that has been executed by the Company (the "Subscription").

2.       Offering Material.

         Subscriber represents and warrants that it is in receipt of and that it
has carefully read the following items:

         (a) The Company's  business plan , the form of which is attached hereto
(the "Business Plan");

         (b) The audited financial  statement of Shenzhen BAK Battery Co., Ltd.,
the  Company's  wholly-owned  subsidiary  ("BAK")  for the  fiscal  years  ended
September 30, 2003 and 2004.

         (c) The Exchange Agreement;

         (d) The Escrow Agreement; and

         (e) A draft of the Registration Statement.

         The  documents  listed in this Section 2 shall be referred to herein as
the "Disclosure Documents."

3.       Conditions to Subscriber's Obligations.

         3.1 The obligation of Subscriber to close the transaction  contemplated
by this Agreement (the "Transaction") is subject to the satisfaction on or prior
to the  Closing  Date of the  following  conditions  set forth in  Sections  3.2
through 3.5 hereof.

         3.2 The Company shall have executed this Agreement.

         3.3  The  Board  of  Directors  of  the  Company   shall  have  adopted
resolutions consistent with Section 4.1(d) below.

         3.4  Subscriber  shall  have  received  copies  of  all  documents  and
information  which it may  have  reasonably  requested  in  connection  with the
Offering.

         3.5 The Exchange shall have been simultaneously consummated.

         3.6 The Registration Statement shall have been filed with the SEC.

         3.7 The representations and warranties of the Company shall be true and
correct on and as of the Closing Date as though made on and as of such date.

         3.8 If so requested by Subscriber,  the Company shall have delivered to
the custodian for the Subscriber duly executed certificate(s), registered in the
name of Subscriber's nominee, representing the Public Company Shares.

                                       2
<PAGE>

4.       Representations and Warranties; Covenants; Survival.

         4.1 The Company represents and warrants to Subscriber that, at the date
of this Agreement and as of the Closing Date:

         (a) The  Company and each of its  subsidiaries  are  corporations  duly
organized,  validly  existing  and in good  standing  under  the  laws of  their
jurisdiction of incorporation,  with all requisite corporate power and authority
to carry on the  business in which they are  engaged  and to own the  properties
they own, and the Company has all  requisite  power and authority to execute and
deliver this Agreement and to consummate the transactions  contemplated  hereby.
The Company and each of its  subsidiaries  are duly qualified and licensed to do
business and are in good standing in all jurisdictions where the nature of their
business  makes such  qualification  necessary,  except  where the failure to be
qualified or licensed  would not have a material  adverse effect on the business
of the Company and its subsidiaries, taken as a whole.

         (b) Except as otherwise  described in the Disclosure  Documents,  there
are no legal actions or administrative proceedings or investigations instituted,
or to the best knowledge of the Company  threatened,  against the Company,  that
could reasonably be expected to have a material adverse effect on the Company or
any subsidiary, any of the Common Shares, or the business of the Company and its
subsidiaries, or which concerns the transactions contemplated by this Agreement.

         (c) The audited  financial  statements  of BAK as of September 30, 2003
and 2004  including the notes  contained  therein,  fairly present the financial
position  of BAK  at  the  respective  dates  thereof  and  the  results  of its
operations  for the periods  purported  to be covered  thereby.  Such  financial
statements have been prepared in conformity with generally  accepted  accounting
principles  consistently  applied with prior periods subject to any comments and
notes contained  therein.  Since September 30, 2004,  there has been no material
adverse  change  in the  financial  condition  of the  Company  or BAK  from the
financial condition stated in such financial statements.

         (d) The Company,  by appropriate and required corporate action, has, or
will have prior to the closing,  duly authorized the execution of this Agreement
and the issuance and delivery of the Common  Shares.  The Common  Shares are not
subject to  preemptive  or other rights of any  stockholders  of the Company and
when issued in accordance  with the terms of this  Agreement,  the Common Shares
will be validly issued,  fully paid and  nonassessable and free and clear of all
pledges, liens and encumbrances.

         (e)  Performance of this  Agreement and compliance  with the provisions
hereof will not violate any  provision of any  applicable  law or of the charter
documents of the Company, or of any of its subsidiaries,  and, will not conflict
with or result in any breach of any of the terms,  conditions or provisions  of,
or  constitute a default  under,  or result in the creation or imposition of any
lien,  charge  or  encumbrance  upon,  any of the  properties  or  assets of the
Company, or of any of its subsidiaries,  pursuant to the terms of any indenture,
mortgage,  deed of trust or  other  agreement  or  instrument  binding  upon the
Company, or any of its subsidiaries, other than such breaches, defaults or liens
which  would  not  have a  material  adverse  effect  on  the  Company  and  its
subsidiaries taken as a whole. The Company is not in default under any provision
of its organizational documents or under any provision of any agreement or other
instrument  to  which  it is a party  or by  which  it is  bound  or of any law,
governmental order, rule or regulation so as to affect adversely in any material
manner its business or assets or its condition, financial or otherwise.

         (f) The Disclosure Documents, taken together, do not contain any untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated therein to make the statements contained therein not misleading.

         (g) This  Agreement has been duly executed and delivered by the Company
and  constitutes  a valid and binding  obligation  of the  Company,  enforceable
against the Company in accordance with its terms.

         (h) No registration,  authorization, approval, qualification or consent
of any court or governmental authority or agency is necessary in connection with
the execution and delivery of this  Agreement or the offering,  issuance or sale
of the Common Shares under this Agreement.

                                       3
<PAGE>

         (i) The  Company is not now,  and after the sale of the  Common  Shares
under this Agreement and under all other  agreements and the  application of the
net  proceeds  from the sale of the Common  Shares  will not be, an  "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

         (j) Subject to the  accuracy of the  Subscriber's  representations  and
warranties in Section 7 of this Agreement,  the offer, sale, and issuance of the
Common  Shares  in  conformity  with  the  terms  of this  Agreement  constitute
transactions made exempt from the registration  requirements of Section 5 of the
Securities  Act of  1933,  as  amended  (the  "Securities  Act")  and  from  the
registration or qualification requirements of the laws of any applicable state.

         (k)  Neither the  Company,  nor any of its  affiliates,  nor any person
acting on its or their  behalf,  has directly or  indirectly  made any offers or
sales  in any  security  or  solicited  any  offers  to buy any  security  under
circumstances  that would require  registration  under the Securities Act of the
issuance of the Shares to the Subscriber.

         (l) Li Xiangqian,  the Company's and BAK's Chief Executive  Officer has
agreed that he will not sell,  transfer or otherwise  dispose of his holdings in
either the Company or the Public Company,  upon consummation of the Going Public
Transaction,  except to  persons or  entities  who agree to be bound by the same
restrictions,  for a period  of  twelve  months  following  the date the  Public
Company's securities become eligible for quotation on the NASDAQ Stock Market.

         (m)  Executive  management  of the  Company  will  escrow  10% of their
holdings (the "Make Good Shares") in the Public Company  following  consummation
of the Going Public Transaction, so that in the event the consolidated financial
statements of the Public Company do not reflect $12 million of Net Income ("NI")
for the fiscal year ending  September 30, 2005 and $27 million NI for the fiscal
year ending September 30, 2006, respectively (the "Guaranteed NI") the Make Good
Shares shall be distributed on a pro rata to the  subscribers to the Offering as
follows:  (i) in the  event  that  the  Guaranteed  NI for  fiscal  2005  is not
achieved,  50% of the Make Good Shares will be delivered to  participants in the
Offering  within  ten (10)  business  days of the date the audit  report for the
period is filed with the SEC;  and (b) in the event that the  Guaranteed  NI for
fiscal  2006 is not  achieved,  the  balance  of the Make  Good  Shares  will be
delivered to  participants  in the Offering within ten (10) business days of the
date the audit report for the period is filed with the SEC. If the Guaranteed NI
is  achieved  for a given  fiscal  year,  holders  of the Make Good  Shares  can
immediately   take  possession  of  the  number  of  said  shares  reserved  for
distribution  during said period to participants  in the Offering.  In the event
the Make Good Shares are delivered to participants in the Offering,  the holders
thereof  shall be  afforded  demand  registration  rights  to have the Make Good
Shares registered under the Securities Act.

         4.2 The Company shall indemnify and hold harmless the Subscribers  from
and against all fees,  commissions or other payments owing by the Company to any
other person or firm acting on behalf of the Company hereunder.

5.       Transfer and Registration Rights.

         5.1 Subscriber  acknowledges that it is acquiring the Common Shares for
its own  account and for the  purpose of  investment  and not with a view to any
distribution  or resale thereof within the meaning of the Securities Act and any
applicable  state or other  securities laws ("State Acts").  Subscriber  further
agrees that, except in connection with the Exchange,  it will not sell,  assign,
transfer or otherwise  dispose of any of the Common Shares or the Public Company
Shares in violation of the Securities Act or State Acts and  acknowledges  that,
in taking  unregistered  Common Shares and ultimately  Public Company Shares, it
must  continue  to  bear  economic  risk  in  regard  to its  investment  for an
indefinite  period of time because of the fact that  neither of such  securities
have been registered under the Securities Act or State Acts and further realizes
that such securities  cannot be sold unless  subsequently  registered  under the
Securities  Act and  State  Acts  or an  exemption  from  such  registration  is
available.

         5.2  Neither  the Common  Shares or the Public  Company  Shares  issued
pursuant to this Agreement may be transferred  except in a transaction  which is
in compliance with the Securities Act and State Acts.

6.       Closing.

                                       4
<PAGE>

         6.1 The  closing of the  Offering  shall take place at such time and at
such place as the Company shall determine, provided that the Closing shall occur
no  later  than  December  28,  2004,  unless  otherwise  extended  for up to an
additional  45 days . If the closing of the sale of Common  Shares to Subscriber
has not occurred within the time frame provided in the previous  sentence,  then
Subscriber may terminate this Agreement by giving written notice to the Company.

         7. Subscriber Representations.  Subscriber hereby represents,  warrants
and acknowledges and agrees with the Company as follows:

         7.1  Subscriber  has been  furnished  with and has  carefully  read the
Disclosure  Documents as set forth in Section 2 hereto and is familiar  with the
terms of the Offering.  With respect to individual or partnership  tax and other
economic considerations  involved in this investment,  Subscriber is not relying
on the  Company  (or  any  agent  or  representative  of  any  of the  Company).
Subscriber has carefully  considered and has, to the extent Subscriber  believes
such discussion  necessary,  discussed with Subscriber's  legal, tax, accounting
and financial advisers the suitability of an investment in the Common Shares for
Subscriber's particular tax and financial situation.

         7.2 Subscriber has had an  opportunity  to inspect  relevant  documents
relating  to  the  organization  and  operations  of  the  Company.   Subscriber
acknowledges that all documents, records and books pertaining to this investment
which  Subscriber  has  requested  have been made  available  for  inspection by
Subscriber and Subscriber's attorney, accountant or other adviser(s).

         7.3 Subscriber and/or Subscriber's advisor(s) has/have had a reasonable
opportunity  to ask questions of and receive  answers and to request  additional
relevant  information  from a person or persons  acting on behalf of the Company
concerning the Offering.

         7.4 Subscriber is not  subscribing for the Common Shares as a result of
or  subsequent  to any  advertisement,  article,  notice or other  communication
published  in any  newspaper,  magazine  or  similar  media  or  broadcast  over
television or radio or presented at any seminar.

         7.5 Subscriber is an "accredited  investor," within the meaning of Rule
501(a) of Regulation D under the Securities Act ("Regulation D"). Subscriber, by
reason of  Subscriber's  business or  financial  experience  or the  business or
financial experience of Subscriber's  professional advisers who are unaffiliated
with and who are not  compensated by the Company or any  affiliate,  directly or
indirectly,   can  be  reasonably  assumed  to  have  the  capacity  to  protect
Subscriber's  own  interests  in  connection  with the  transaction.  Subscriber
further  acknowledges  that he has read the  written  materials  provided by the
Company.

         7.6 Subscriber has adequate means of providing for Subscriber's current
financial  needs and  contingencies,  is able to bear the  substantial  economic
risks of an investment  in the Common  Shares for an indefinite  period of time,
has no need for liquidity in such  investment  and, at the present  time,  could
afford a complete loss of such investment.

         7.7 Subscriber has such knowledge and experience in financial,  tax and
business  matters  so as to  enable  Subscriber  to  use  the  information  made
available to Subscriber  in connection  with the Offering to evaluate the merits
and  risks  of an  investment  in the  Common  Shares  and to make  an  informed
investment decision with respect thereto.

         7.8 Subscriber recognizes that investment in the Common Shares involves
substantial  risks.  Subscriber  further  recognizes  that no  Federal  or state
agencies have passed upon this offering of the Common Shares or made any finding
or determination as to the fairness of this investment.

         7.9 Subscriber  acknowledges  that each  certificate  representing  the
Public  Company  Shares shall  contain a legend  substantially  in the following
form:

         THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
         ACT OF 1933 (THE  "SECURITIES  ACT") OR UNDER APPLICABLE STATE
         SECURITIES LAWS AND MAY NOT BE SOLD,  TRANSFERRED OR OTHERWISE
         DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND ANY

                                       5
<PAGE>

         APPLICABLE  STATE  SECURITIES  LAWS OR PURSUANT  TO  AVAILABLE
         EXEMPTIONS  FROM SUCH  REGISTRATION,  PROVIDED THAT THE SELLER
         DELIVERS TO THE COMPANY AN OPINION OF COUNSEL  (WHICH  OPINION
         AND COUNSEL ARE  SATISFACTORY  TO THE COMPANY)  CONFIRMING THE
         AVAILABILITY OF SUCH EXEMPTION. INVESTORS SHOULD BE AWARE THAT
         THEY  MAY BE  REQUIRED  TO BEAR  THE  FINANCIAL  RISKS OF THIS
         INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

         7.10 If this  Agreement  is  executed  and  delivered  on  behalf  of a
partnership,  corporation,  trust or estate: (i) such partnership,  corporation,
trust or  estate  has the full  legal  right and  power  and all  authority  and
approval  required  (a) to execute  and  deliver,  or  authorize  execution  and
delivery of, this Agreement and all other instruments  executed and delivered by
or on behalf of such  partnership,  corporation,  trust or estate in  connection
with the purchase of the Common Shares,  (b) to delegate authority pursuant to a
power of attorney  and (c) to purchase  and hold such  Common  Shares;  (ii) the
signature of the party signing on behalf of such partnership, corporation, trust
or estate is binding upon such partnership,  corporation,  trust or estate;  and
(iii)  such  partnership,  corporation  or  trust  has not been  formed  for the
specific purpose of acquiring the Common Shares, unless each beneficial owner of
such  entity is  qualified  as an  "accredited  investor"  within the meaning of
Regulation  D and  has  submitted  information  substantiating  such  individual
qualification.

         7.11 If Subscriber is a retirement  plan or is investing on behalf of a
retirement plan,  Subscriber  acknowledges  that investment in the Common Shares
poses risks in addition to those  associated with other  investments,  including
the  inability to use losses  generated by an investment in the Common Shares to
offset taxable income.

8.       Understandings.

         Subscriber  understands,  acknowledges  and agrees  with the Company as
follows:

         8.1  Subscriber  hereby  acknowledges  and agrees  that upon  notice of
acceptance from the Company pursuant to Section 1.3, the Subscription  hereunder
is irrevocable by  Subscriber,  that,  except as required by law or as permitted
under  Section 6.1 above,  Subscriber  is not  entitled to cancel,  terminate or
revoke this  Agreement or any  agreements of Subscriber  hereunder and that this
Subscription  Agreement  and such other  agreements  shall  survive the death or
disability of  Subscriber  and shall be binding upon and inure to the benefit of
the  parties  hereto  and their  respective  heirs,  executors,  administrators,
successors,  legal  representatives and permitted assigns. If Subscriber is more
than one person,  the  obligations  of Subscriber  hereunder  shall be joint and
several and the  agreements,  representations,  warranties  and  acknowledgments
herein  contained  shall be deemed to be made by and be  binding  upon each such
person  and  his or her  heirs,  executors,  administrators,  successors,  legal
representatives and permitted assigns.

         8.2 No federal or state agency has made any  findings or  determination
as to the  fairness  of the  terms  of  this  Offering  for  investment  nor any
recommendations or endorsement of the Common Shares.

         8.3 The Offering is intended to be exempt from  registration  under the
Securities  Act by  virtue  of  Section  4(2)  of the  Securities  Act  and  the
provisions of Rule 506 of Regulation D  thereunder,  which is in part  dependent
upon the truth,  completeness  and accuracy of the statements made by Subscriber
herein.

         8.4 It is  understood  that in order not to jeopardize  the  Offering's
exempt status under  Section 4(2) of the  Securities  Act and  Regulation D, any
transferee  may, at a minimum,  be required to fulfill the investor  suitability
requirements thereunder.

         8.5 No person or entity acting on behalf,  or under the  authority,  of
Subscriber  is or will be entitled to any  broker's,  finder's or similar fee or
commission in connection with this Subscription.

         8.6  Subscriber  acknowledges  that the  information  furnished in this
Agreement by the Company to Subscriber  or its advisers in  connection  with the
Offering,  is  confidential  and  nonpublic  and  agrees  that all such  written

                                       6
<PAGE>

information  which is material and not yet publicly  disseminated by the Company
shall be kept in  confidence by  Subscriber  and neither used by Subscriber  for
Subscriber's personal benefit (other than in connection with this Subscription),
nor disclosed to any third party,  except  Subscriber's legal and other advisers
who shall be advised of the  confidential  nature of such  information,  for any
reason;  provided,  however,  that this  obligation  shall not apply to any such
information  that (i) is part of the public  knowledge or literature and readily
accessible  at the date hereof,  (ii) becomes a part of the public  knowledge or
literature and readily accessible by publication (except as a result of a breach
of this provision) or (iii) is received from third parties (except third parties
who disclose such information in violation of any confidentiality  agreements or
obligations,  including,  without limitation, any subscription agreement entered
into with the  Company).  The  representations,  warranties  and  agreements  of
Subscriber and the Company  contained herein and in any other writing  delivered
in  connection  with the  Offering  shall be true and  correct  in all  material
respects on and as of the Closing Date of such Subscription as if made on and as
of the date the Company  executes this Agreement and shall survive the execution
and delivery of this Agreement and the purchase of the Common Shares.

         8.7 IN MAKING AN INVESTMENT  DECISION,  SUBSCRIBER MUST RELY ON ITS OWN
EXAMINATION  OF THE COMPANY AND THE TERMS OF THE OFFERING,  INCLUDING THE MERITS
AND RISKS INVOLVED.  THE COMMON SHARES HAVE NOT BEEN  RECOMMENDED BY ANY FEDERAL
OR STATE SECURITIES  COMMISSION OR REGULATORY  AUTHORITY.  ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

9.       Miscellaneous.

         9.1 Except as set forth  elsewhere  herein,  any notice or demand to be
given or served in connection  herewith shall be deemed to be sufficiently given
or served for all purposes by being sent as registered or certified mail, return
receipt requested,  postage prepaid, in the case of the Company, addressed to it
at the address set forth below:

                           BAK Industrial Zone
                           Atou Village
                           Kui Chong Town
                           Lunggang District
                           Shenzhen, China 518119
                           Attention:  Li Xiang Qian, President

         and in the case of Subscriber to the address set forth below:

                       ___________________________________
                       ___________________________________
                       ___________________________________
                       ___________________________________

         9.2 This  Agreement  shall be enforced,  governed and  construed in all
respects in accordance with the laws of Hong Kong, and shall be binding upon and
inure to the benefit of the parties hereto and their  respective  successors and
assigns.  If any provision of this Agreement is invalid or  unenforceable  under
any  applicable  statute  or rule of law,  then such  provision  shall be deemed
inoperative to the extent that it may conflict  therewith and shall be deemed to
be modified to conform with such statute or rule of law.  Any  provision  hereof
that may prove  invalid  or  unenforceable  under any law shall not  affect  the
validity or enforceability of any other provision hereof.

         9.3 In any action, proceeding or counterclaim brought to enforce any of
the  provisions of this Agreement or to recover  damages,  costs and expenses in
connection with any breach of the Agreement, the prevailing party, as determined
by the finder of fact,  shall be entitled to be reimbursed by the opposing party
for all of the prevailing  party's reasonable outside attorneys' fees, costs and
other out-of-pocket expenses incurred in connection with such action, proceeding
or counterclaim.

         9.4 This Agreement  constitutes the entire  agreement among the parties
hereto with respect to the subject  matter  hereof.  There are no  restrictions,
promises,  warranties or  undertakings,  other than those set forth herein.  The

                                       7
<PAGE>

Company acknowledges that all material facts upon which it has relied in forming
its decision to enter into this  Agreement  are  expressly  set forth herein and
further  acknowledges  that the  Subscriber  has not  made any  representations,
express or implied, which are not set expressly set forth herein. This Agreement
supercedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.

         9.5 The Company shall  indemnify,  defend and hold harmless  Subscriber
and each of its agents, partners, members, officers, directors, representatives,
or affiliates  (collectively,  the "Subscriber Indemnities") against any and all
losses, liabilities,  claims and expenses,  including reasonable attorneys' fees
("Losses"),  sustained by Subscriber Indemnities resulting from, arising out of,
or connected with any material  inaccuracy in, breach of, or  nonfulfillment  of
any representation,  warranty, covenant or agreement made by or other obligation
of the Company contained in this Agreement (including the Exhibits hereto) or in
any document delivered in connection herewith.

         9.6 Subscriber  shall  indemnify,  defend and hold harmless the Company
and each of its agents, partners, members, officers, directors, representatives,
or  affiliates  (collectively,  the "Company  Indemnities")  against any and all
Losses sustained by the Company  Indemnities  resulting from, arising out of, or
connected with any material  inaccuracy in, breach of, or non-fulfillment of any
representation,  warranty,  covenant or agreement made by or other obligation of
Subscriber contained in this Agreement (including the Exhibits hereto) or in any
document delivered in connection herewith.

         9.7 The Company shall not issue any public  statement or press release,
or  otherwise  disclose  in any manner the  identity of the  Subscriber  or that
Subscriber has purchased the Common Shares, without the prior written consent of
the Subscriber,  except as may be required by applicable law; provided, however,
that the Company may disclose such  information  in the  Registration  Statement
filed with the SEC.

10.      Signature. The signature page of this Agreement is contained as part of
the applicable Subscription Package, entitled "Signature Page."

                                       8
<PAGE>

                   SUBSCRIPTION AGREEMENT GENERAL INSTRUCTIONS
                   -------------------------------------------

General Instructions

         These  Subscription   Documents  contain  all  documents  necessary  to
subscribe for Common Shares ("Common  Shares"),  of BAK  International,  Ltd., a
Hong Kong corporation (the "Company").

         You may  subscribe for Common  Shares by  completing  the  Subscription
Agreement in the following manner:

1.       On line (a) of the signature page state the number of Common Shares you
wish to purchase.

2.       On line (b) of the  signature  page  state the total cost of the Common
Shares you wish to purchase.  To obtain the cost,  multiply the number of Common
Shares you desire to purchase by the  purchase  price per Common Share set forth
therein.

3.       Sign and state your address,  telephone  number and social  security or
other taxpayer identification number on the lines provided on the signature page
to the Subscription  Agreement and deliver the completed  Subscription Agreement
with payment of the entire purchase price of the Common Shares subscribed for as
set  forth  below.  Payment  should  be made in United  States  Dollars  by wire
transfer to:

         ___________________________________
         ___________________________________
         ___________________________________
         ___________________________________

The Subscription  Agreement  Signature Page must be completed and signed by each
investor. Send all documents to:

                  Securities Transfer Corporation
                  Attention: Kevin Halter
                  2591 Dallas Parkway, Suite 102
                  Frisco, Texas 75034

         THE COMPLETED SUBSCRIPTION AGREEMENT SHOULD BE RETURNED IN ITS ENTIRETY
TO THE ESCROW AGENT DESIGNATED ABOVE.

Acceptance of Delivery

         All questions as to the validity,  form, eligibility (including time of
receipt)  and  acceptance  of  the  completed  Subscription  Agreement  will  be
reasonably determined by the Company. The Company reserves the absolute right to
reject  any  completed  Subscription   Agreement,   in  its  sole  and  absolute
discretion.  The Company also reserves the right to waive any irregularities in,
or conditions  of, the  submission  of completed  Subscription  Agreements.  The
Company shall be under no duty to give any  notification  of  irregularities  in
connection  with any  attempted  subscription  for  Common  Shares  or incur any
liability for failure to give such notification.  Until such irregularities have
been cured or waived,  no subscription for Common Shares shall be deemed to have
been made. Any Subscription  Agreement that is not properly  completed and as to
which  defects  have not been cured or waived will be returned by the Company to
the Subscriber as soon as practicable.

                                       9
<PAGE>

                      SUBSCRIPTION AGREEMENT SIGNATURE PAGE

         The  undersigned  investor  hereby  certifies  that  he or she  (i) has
received and relied solely upon information provided by the Company, (ii) agrees
to all the terms and conditions of this Subscription Agreement,  (iii) meets the
suitability  standards  set forth in this  Subscription  Agreement and (iv) is a
resident of the state indicated below.

         (a)      The undersigned subscribes for __________ Common Shares.
         (b)      The total cost of the Common Shares  subscribed  for, at $____
                  per Common Share, is $__________ (the "Purchase Price").

                                 If other than Individual check one and indicate
_____________________________    capacity of signatory under the signature:

                                 [_] Trust
                                 [_] Estate
_____________________________    [_] Uniform Gifts to Minors Act of State of____
Name of Subscriber (Print)       [_] Attorney-in-fact
                                 [_] Corporation
                                 [_] Other______________________________________

_____________________________    If Joint Ownership, check one:
Name of Joint Subscriber
(if any) (Print)
                                 [_] Joint Tenants with Right of Survivorship
                                 [_] Tenants in Common
_____________________________    [_] Tenants by Entirety
Signature of Subscriber          [_] Community Property

_____________________________
Signature of Joint Subscriber
(if any)

_____________________________
Capacity of Signatory
(if applicable)

_____________________________    Backup Withholding Statement:
Social Security or               Please check this box only if the investor
Taxpayer Identification Number   is subject to:

                                 [_] backup withholding.
_____________________________
Address                          Foreign Person:
                                 Please check this box only if
                                 the investor is a:

                                 [_] nonresident  alien,  foreign  corporation,
_____________________________        foreign  partnership,   foreign  trust  or
City      State     Zip Code         foreign estate.

Telephone (   )____________________
Telecopy No. ______________________

The investor agrees to the terms of this Subscription Agreement and, as required
by the  Regulations  pursuant to the  Internal  Revenue  Code,  certifies  under
penalty  of  perjury   that  (1)  the  Social   Security   Number  or   Taxpayer
Identification Number and address provided above is correct, (2) the investor is
not subject to backup withholding  (unless the Backup Withholding  Statement box
is checked) either because he has not been notified that he is subject to backup
withholding  as a result of a failure to report all  interest  or  dividends  or
because  the  Internal  Revenue  Service has  notified  him that he is no longer
subject to backup  withholding  and (3) the investor  (unless the Foreign Person
box above is checked) is not a nonresident alien, foreign  partnership,  foreign
trust or foreign estate.

                                       10
<PAGE>

         THE SUBSCRIPTION  FOR  _____________  COMMON SHARES BAK  INTERNATIONAL,
LTD. BY THE ABOVE NAMED SUBSCRIBER(S) IS ACCEPTED AS OF ________________, 2004.

                                  BAK INTERNATIONAL, LTD.

                                  By: __________________________________________

                                  Title:________________________________________

                                       11

<PAGE>

                                ESCROW AGREEMENT

         This Escrow Agreement (the "Agreement"), dated effective as of the last
date set forth opposite the respective  signatories  hereto,  is entered into by
and among BAK International, Ltd., a Hong Kong corporation (the "Company"), each
of the subscribers to the Company's  private  offering of securities  identified
below  (collectively,  the "Subscribers"),  and Securities Transfer  Corporation
(hereinafter referred to as "Escrow Agent").

         WHEREAS,  the Company and each of the  Subscribers  have entered into a
Subscription  Agreement (the  "Subscription  Agreement")  pursuant to which each
Subscriber  has agreed to purchase from the Company,  and the Company has agreed
to sell to each  Subscriber,  the  number of shares of the  common  stock of the
Company identified therein;

         WHEREAS,  pursuant to the Subscription  Agreement,  the Company and the
Subscribers  have agreed to establish an escrow on the terms and  conditions set
forth in this Agreement;

         WHEREAS, the Escrow Agent has agreed to act as escrow agent pursuant to
the terms and conditions of this Agreement; and

         WHEREAS,  all capitalized  terms used but not defined herein shall have
the meanings assigned them in the Subscription Agreement;

         NOW, THEREFORE,  in consideration of the mutual promises of the parties
and the terms and conditions hereof, the parties hereby agree as follows:

         1.  Appointment of Escrow Agent. The Subscribers and the Company hereby
appoint  Securities  Transfer  Corporation  as Escrow Agent to act in accordance
with the terms and  conditions  set forth in this  Agreement,  and Escrow  Agent
hereby accepts such  appointment and agrees to act in accordance with such terms
and conditions.

         2.  Establishment of Escrow. All amounts invested by the Subscribers as
identified in each accepted  Subscription  Agreement shall be deposited with the
Escrow Agent in immediately available funds by federal wire transfer, such funds
being referred to herein as the "Escrow Funds".

         3.  Segregation  of Escrow Funds.  The Escrow Funds shall be segregated
from the assets of Escrow Agent and held in trust for the benefit of the Company
and the Subscribers in accordance herewith.

         4. Receipt and Investment of Funds.

                  (a)  Escrow  Agent  agrees  to  place  the  Escrow  Funds in a
non-interest  bearing  and  Federally  insured  depository  account.  Subject to
Section 7.3 hereof,  Escrow Agent shall have no liability for any loss resulting
from the deposit of the Escrow Funds.

                  (b) The Escrow Agent shall cause to be prepared all income and
other tax returns and reports the Escrow Agent,  in its sole  discretion,  deems
necessary or advisable in order to comply with all tax and other laws, rules and
regulations applicable to the Escrow Funds.

         5. Disbursement of the Escrow Funds.

                  (a) Duration.  This Agreement  shall terminate on the first to
occur of the following dates:

                           (i) on the  Closing  Date of the  Offering,  at which
         time the Escrow Funds shall be delivered to the Company; or

                           (ii)  on the  termination  date of the  Offering,  in
         which event the Escrow Funds shall be returned to the Subscribers.

                           Either of the forgoing dates may be extended by joint
         written instructions to Escrow Agent by the Company and the Subscribers
         (any such date, or any later date to which any prior  Termination  Date
         has been so  extended  being  referred  to herein  as the  "Termination
         Date"). On the Termination Date, Escrow Agent shall disburse the Escrow
         Funds it then holds in accordance with the provisions of this Agreement
         and this  Agreement  shall  terminate,  whereupon all of Escrow Agent's
         liabilities  and  obligations in connection with the Escrow Funds shall
         terminate

         6. Interpleader.  Should any controversy arise among the parties hereto
with  respect to this  Agreement  or with  respect  to the right to receive  the
Escrow  Funds,  Escrow Agent shall have the right to consult  counsel  and/or to
institute an  appropriate  interpleader  action to  determine  the rights of the
parties.  Escrow Agent is also hereby  authorized  to  institute an  appropriate
interpleader  action upon receipt of a written  letter of direction  executed by
the parties so directing  Escrow Agent. If Escrow Agent is directed to institute
an appropriate  interpleader action, it shall institute such action not prior to
thirty (30) days after  receipt of such letter of  direction  and not later than
sixty  (60)  days  after  such  date.  Any  interpleader  action  instituted  in
accordance  with  this  Section  6 shall  be filed  in any  court  of  competent
jurisdiction  in Dallas  County,  Texas,  and the portion of the Escrow Funds in
dispute  shall be deposited  with the court and in such event Escrow Agent shall
be relieved of and discharged from any and all obligations and liabilities under
and pursuant to this Agreement with respect to that portion of the Escrow Funds.

         7. Exculpation and Indemnification of Escrow Agent.

                  (a)  Escrow  Agent is not a party  to,  and is not bound by or
charged with notice of any agreement out of which this escrow may arise.  Escrow
Agent acts under this Agreement as a depositary  only and is not  responsible or
liable in any manner whatsoever for the sufficiency, correctness, genuineness or
validity of the subject  matter of the escrow,  or any part thereof,  or for the
form or execution of any notice given by any other party  hereunder,  or for the
identity or authority of any person  executing any such notice or depositing the
Escrow Funds.  Escrow Agent will have no duties or  responsibilities  other than
those  expressly  set forth  herein.  Escrow Agent will be under no liability to
anyone by reason of any  failure  on the part of any party  hereto  (other  than

<PAGE>

Escrow  Agent) or any maker,  endorser  or other  signatory  of any  document to
perform  such  person's  or  entity's  obligations  hereunder  or under any such
document. Except for this Agreement and instructions to Escrow Agent pursuant to
the terms of this Agreement, Escrow Agent will not be obligated to recognize any
agreement  between or among any or all of the  persons or  entities  referred to
herein, notwithstanding its knowledge thereof.

                  (b) Escrow  Agent  will not be liable for any action  taken or
omitted  by it, or any action  suffered  by it to be taken or  omitted,  in good
faith and in the exercise of its own best  judgment,  and may rely  conclusively
on,  and  will  be  protected  in  acting  upon,  any  order,  notice,   demand,
certificate, or opinion or advice of counsel (including counsel chosen by Escrow
Agent), statement, instrument, report or other paper or document (not only as to
its due execution and the validity and effectiveness of its provisions, but also
as to the truth and acceptability of any information therein contained) which is
reasonably  believed by Escrow Agent to be genuine and to be signed or presented
by the proper person or persons.  The duties and  responsibilities of the Escrow
Agent  hereunder  shall be determined  solely by the express  provisions of this
Agreement and no other or further duties or  responsibilities  shall be implied,
including,  but not limited to, any  obligation  under or imposed by any laws of
the State of Texas upon fiduciaries.

                  (c)  Escrow  Agent  will be  indemnified  and  held  harmless,
jointly and severally,  by the Company and the Subscribers  from and against any
expenses,  including  reasonable  attorneys' fees and disbursements,  damages or
losses suffered by Escrow Agent in connection  with any claim or demand,  which,
in any way,  directly or indirectly,  arises out of or relates to this Agreement
or the  services of Escrow  Agent  hereunder;  except,  that if Escrow  Agent is
guilty of willful  misconduct,  fraud or gross  negligence under this Agreement,
then Escrow Agent will bear all losses, damages and expenses arising as a result
of such  willful  misconduct,  fraud or gross  negligence.  Promptly  after  the
receipt  by  Escrow  Agent  of  notice  of  any  such  demand  or  claim  or the
commencement of any action, suit or proceeding relating to such demand or claim,
Escrow Agent will notify the other parties  hereto in writing.  For the purposes
hereof,  the terms "expense" and "loss" will include all amounts paid or payable
to satisfy any such claim or demand, or in settlement of any such claim, demand,
action,  suit or  proceeding  settled  with the express  written  consent of the
parties  hereto,  and all costs and  expenses,  including,  but not  limited to,
reasonable attorneys' fees and disbursements,  paid or incurred in investigating
or defending against any such claim,  demand,  action,  suit or proceeding.  The
provisions of this Section 7 shall survive the termination of this Agreement.

         8.  Compensation of Escrow Agent.  The Company will pay Escrow Agent an
amount  equal to Escrow  Agent's  standard  fee  schedule  rate for all services
rendered by Escrow Agent hereunder.

         9.  Resignation  of  Escrow  Agent.  At any time,  upon ten (10)  days'
written  notice to the Company,  Escrow Agent may resign and be discharged  from
its  duties  as  Escrow  Agent  hereunder.  As soon  as  practicable  after  its
resignation,  Escrow Agent will promptly  turn over to a successor  escrow agent
appointed  by  the  Company  all  monies  and  property  held   hereunder   upon
presentation  of a document  appointing  the new escrow agent and evidencing its
acceptance thereof.  If, by the end of the 10-day period following the giving of
notice of resignation by Escrow Agent,  the Company shall have failed to appoint
a successor escrow agent,  Escrow Agent may interplead the Escrow Funds into the
registry of any court having jurisdiction.

<PAGE>

         10. Method of Distribution by Escrow Agent. All disbursements by Escrow
Agent to a party to this  Agreement will be made by wire transfer of immediately
available funds to an account  designated in writing by the party to receive any
such payment.

         11.  Records.  Escrow  Agent  shall  maintain  accurate  records of all
transactions  hereunder.  Promptly after the termination of this Agreement or as
may  reasonably be requested by the parties hereto from time to time before such
termination,  Escrow Agent shall provide the parties hereto, as the case may be,
with a complete copy of such records, certified by Escrow Agent to be a complete
and accurate account of all such transactions. The authorized representatives of
each of the  parties  hereto  shall have access to such books and records at all
reasonable  times during normal business hours upon reasonable  notice to Escrow
Agent.

         12. Notice. All notices,  communications  and instructions  required or
desired to be given under this  Agreement must be in writing and shall be deemed
to be duly  given  if sent by  registered  or  certified  mail,  return  receipt
requested, or overnight courier to the following addresses:

         If to Escrow Agent:          Securities Transfer Corporation
                                      2591 Dallas Parkway, Suite 102
                                      Frisco, Texas 75034
                                      Attention: Kevin Halter

         If to the Company:           BAK Industrial Zone
                                      Atou Village
                                      Kui Chong Town
                                      Lunggang District
                                      Shenzhen, China 518119
                                      Attention: Li Xiang Qian, President

         If to the Subscribers:       Addresses noted in their respective
                                      Subscription Agreements

or to such other address and to the attention of such other person as any of the
above may have  furnished  to the other  parties in  writing  and  delivered  in
accordance with the provisions set forth above.

         13.  Execution  in  Counterparts.  This  Agreement  may be  executed in
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

         14.  Assignment  and  Modification.  This  Agreement and the rights and
obligations  hereunder of any of the parties hereto may not be assigned  without
the prior written consent of the other parties hereto. Subject to the foregoing,
this  Agreement  will be  binding  upon and inure to the  benefit of each of the
parties hereto and their respective  successors and permitted assigns.  No other
person will acquire or have any rights under,  or by virtue of, this  Agreement.

<PAGE>

No portion of the Escrow  Funds shall be subject to  interference  or control by
any creditor of any party hereto, or be subject to being taken or reached by any
legal or equitable process in satisfaction of any debt or other liability of any
such party  hereto  prior to the  disbursement  thereof to such party  hereto in
accordance with the provisions of this Agreement.  This Agreement may be changed
or modified only in writing signed by all of the parties hereto.

         15.  APPLICABLE  LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE  WITH THE LAWS OF THE STATE OF TEXAS  APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED  THEREIN,  EXCEPT THAT THE PORTIONS OF THE TEXAS TRUST CODE,
SECTION 111.001, ET SEQ. OF THE TEXAS PROPERTY CODE, CONCERNING FIDUCIARY DUTIES
AND  LIABILITIES  OF  TRUSTEES  SHALL NOT APPLY TO THIS  AGREEMENT.  THE PARTIES
EXPRESSLY  WAIVE SUCH DUTIES AND  LIABILITIES,  IT BEING THEIR  INTENT TO CREATE
SOLELY AN AGENCY RELATIONSHIP AND HOLD THE ESCROW AGENT LIABLE ONLY IN THE EVENT
OF ITS WILLFUL MISCONDUCT, FRAUD, OR GROSS NEGLIGENCE. ANY LITIGATION CONCERNING
THE SUBJECT  MATTER OF THIS  AGREEMENT  SHALL BE  EXCLUSIVELY  PROSECUTED IN THE
COURTS OF  DALLAS  COUNTY,  TEXAS,  AND ALL  PARTIES  CONSENT  TO THE  EXCLUSIVE
JURISDICTION AND VENUE OF THOSE COURTS.

         16.  Headings.  The  headings  contained  in  this  Agreement  are  for
convenience  of  reference  only and shall not affect the  construction  of this
Agreement.

         17.  Attorneys'  Fees. If any action at law or in equity,  including an
action for declaratory relief, is brought to enforce or interpret the provisions
of this Agreement,  the prevailing party shall be entitled to recover reasonable
attorneys'  fees from the other  party  (unless  such other  party is the Escrow
Agent), which fees may be set by the court in the trial of such action or may be
enforced in a separate action brought for that purpose,  and which fees shall be
in addition to any other relief that may be awarded.

<PAGE>

         IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date set forth opposite their respective names.

                                           BAK International, Ltd.

                                           By:    ______________________________
                                           Its:   ______________________________
                                           Dated: ______________________________

                                           SECURITIES TRANSFER CORPORATION

                                           By:    ______________________________
                                           Its:   ______________________________
                                           Dated: ______________________________

                                           SUBSCRIBERS:

                                           _____________________________________

<PAGE>

--------------------------------------------------------------------------------
BAK

                           CONFIDENTIAL BUSINESS PLAN

                          SHENZHEN BAK BATTERY CO, LTD.

                                  November 2004

                        Confidential Treatment Requested
                        --------------------------------
          Confidential Material in this document has been redacted and
          ------------------------------------------------------------
                      filed separately with the Commission.
                      -------------------------------------

----------------
[*****]Confidential Material redacted and filed separately with the Commission.

                             CONFIDENTIAL TREATMENT

<PAGE>

                                   DISCLAIMER
                     IMPORTANT NOTICE TO RECIPIENTS OF THIS
                           CONFIDENTIAL BUSINESS PLAN

This Confidential  Business Plan (the "Business Plan 2004") and its contents are
the property of Shenzhen BAK Battery Co., Ltd ("BAK").  By accepting delivery of
this Business Plan 2004, the recipient  agrees to return this Business Plan 2004
and all related  documents,  if any, to BAK, upon request.  The recipient agrees
that neither it nor its agents,  representatives,  directors,  or employees will
copy,  reproduce,  or distribute  this Business  Plan, in whole or in part.  The
recipient  agrees not to disclose the contents of this Business Plan 2004 to any
party  other than the  recipient's  business  or tax  advisors,  for  investment
consideration only.

Information contained in this Business Plan 2004 has been obtained from BAK, and
from other sources deemed  reliable,  as of the date of its  publishing,  but no
representation or warranty is made as to its accuracy or completeness. No person
has been  authorized  in  connection  with this  Business  Plan 2004 to give any
information or to make any  representations  other than those  contained  herein
and, if given or made, must not be relied upon as having been  authorized.  Only
those representations and warranties,  which may be made by BAK, in a definitive
written agreement, when and if one is executed, will have any legal effect.

This Business Plan 2004 contains  forward-looking  statements  concerning plans,
intentions,  strategies,  expectations,  predictions,  financial projections and
beliefs of BAK, in regard to future  activities  and results of  operations  and
other future events or conditions.  Actual results,  events, or conditions could
differ materially from those projected by BAK, due to a variety of factors, some
of which are beyond the control of BAK. BAK disclaims any  obligations to update
any such factors or to publicly  announce the results of any revisions to any of
the  forward-looking  statements  contained  herein to reflect  future  results,
events or developments.

This Business Plan 2004 is not, and should not be construed as, an offer to sell
or a solicitation  of an offer to buy  securities of BAK and is for  information
purposes only.

<PAGE>

--------------------------------------------------------------------------------
                                Table of Contents

1.     Executive Summary
2.     Industry Information
2.1        Industry introduction
2.2        World Li-ion industry trends
2.3        Chinese Li-ion industry trends
2.4        Li-ion industry segmentation and trends
3.     The Company
3.1        History
3.2        Company organization framework
3.3        Employees and management
3.4        Facilities
3.5        R&D Center
3.6        Corporate culture and management model
4.     Products and Services
4.1        Product lines
4.2        Proprietary technology
4.3        Post-sale service
4.4        Suppliers
5.     Sales and Marketing
5.1        Marketing strategies
5.2        BAK's current market
5.3        Customers
5.4        Potential market opportunities
6.     Strategic Analysis
6.1        SWOT analysis
6.2        Competitive analysis
6.3        Strategic Plan
6.4        Risks related to doing business in China
7.     Proposed Equity Plan
7.1        The transaction
7.2        Financing and restructuring plan
7.3        Use of funds
7.4        Timetable
8.     Historical Financial Information
9.     Projected Financial Information

Exhibits
Photos of Facilities

<PAGE>

--------------------------------------------------------------------------------

                            PART 1: EXECUTIVE SUMMARY

Founded in 2001,  Shenzhen BAK Battery Co., Ltd.  ("BAK" or the  "Company") is a
China-based  company  specializing  in lithium ion(as "Li-ion" or "Li-ion cell")
battery cell production,  primarily for cell phones. It has achieved high levels
of growth  over the past four years and has become the seventh  largest  Lithium
battery cell manufacturer in terms of production capacity worldwide.

Lithium Ion ("Li-ion")  battery unit  production has increased 30 times over the
past 10 years  (1994-2004).  At the  beginning  of 1990's,  the  Li-ion  battery
industry  was  pioneered  in Japan as a new and more  efficient  type of  energy
storage  than  previous  technologies.   Li-ion  batteries  rapidly  became  the
batteries  of choice  for the rapid  developing  of mobile  phone  industry.  In
addition,  due to development  of electronic  products like  high-power  handset
phones,  laptop computers,  digital cameras and video  camcorders,  the compound
annual worldwide growth rate of Li-ion battery  production is estimated at 23.2%
during the years 2003-2006  (according to the Chinese Battery Association Annual
Report 2004,4). Longer term estimates through 2010 project similar growth rates.

The annual growth rate of Li-ion battery's production has been more than 140% in
China since 2001, and China's share of the worldwide  market is rapidly growing.
In 2002,  the  production of Li-ion  batteries in China was 270 million  pieces,
which was more than 20% of global  market  share.  Unit  production  reached 500
million in 2003,  which was almost 30% of global market share. The newest report
from the  Association of Chemical and Physical  Industry of China indicates that
the annual growth rate will exceed 30% per year over the next several years.

China has become Japan's biggest competitor in Li-ion battery production.  Japan
had a 93.9% global market share through 2000.  However,  Japan's share decreased
to 69.4% in 2002, and 58.2% in 2003. Industry estimates are that by 2005 Japan's
market share will drop to less than 50%.  Japan has lost market share  primarily
to Chinese companies. One of the key reasons is that China is the biggest market
for mobile  phones.  Another  reason is lower  prices  from  Chinese  companies;
China's lower labor and  infrastructure  costs result in a reduced product cost.
The pressure from Chinese  companies is the most important  factor in decreasing
Li-ion  battery  prices in the world market.  The third reason is that China has
established  strong  vertical  integration  of  production,   which  results  in
significant  production  advantages.  China is by far the biggest competitor for
Japan in this market.

Massive capacity,  low manufacturing  cost, high quality and the right marketing
strategy  are the major  elements of  company's  core  competitive  edge.  BAK's
monthly output  capacity is 15 million  pieces and actual current  production is
11.8 million  which makes BAK the seventh  largest  Li-ion  manufacturer  in the
world. BAK's specialty is the production of Li-ion battery cells, offering three
major types divided into 90 different  models,  including  steel case,  aluminum
case and cylindrical Li-ion  rechargeable  batteries.  The battery cells are the
core  components  of  Li-ion   rechargeable   battery  packs.   Chinese  battery

<PAGE>

manufacturers have historically imported battery cells from foreign countries to
produce Li-ion rechargeable  battery. With BAK's large Li-ion cell manufacturing
capacity,  discounted  prices,  and sophisticated  market  positioning,  Chinese
Li-ion battery  packing  companies  (which combine the cells into battery packs)
now have a lower cost domestic supplier and are able to gain market share.

BAK has gained a dominant,  over 60%,  market  share of the  replacement  Li-ion
battery market in China.  BAK has enlarged its production  capacity rapidly over
the past year to become the second largest  manufacturer  in the Chinese market,
with an output of 11.8  million  pieces per month and a current  capacity for 15
million pieces. In the Chinese replacement battery market, BAK has obtained over
60% of the market share,  and has a dominant  position in this market.  Compared
with B&K,  HuanYu and Coslight,  its smaller  competitors  in this segment,  BAK
provides  both a more  customized  and higher  quality  product at a lower cost.
Compared with BYD, BAK's largest competitor,  the company has a [*****] cost for
similar products.

BAK is moving into the Original Equipment Manufacturing (OEM) Market. Having now
succeeded in leading the replacement  Li-ion battery market in China, BAK is now
moving into the OEM market.  Over the last year,  BAK has begun the  preliminary
certification  process  with several  cell phone  manufactures  to become an OEM
supplier  to these  companies.  In  September  2004,  BAK began the  preliminary
process with Motorola and expects to enter the formal stage of  certification by
March 2005.  The Company  expects to complete  this  certification  process with
Motorola by June 2005. BAK is also in the preliminary certification process with
[*****] cell phone  manufacturer,  and expects to complete the OEM certification
process with these companies in November 2005.

BAK's management team and organizational  structure meets the top standards of a
US  public  company.  BAK's  management  team is  energetic,  knowledgeable  and
professional. Mr. Xiangqian Li, CEO, has many years of experience in the capital
markets in China.  He founded the company in 2001, and  successfully  grew it to
its current  size  through  low cost  manufacturing  and Li-ion  research in the
battery  industry.  CFO Mr.  Yongbin Han,  CPA, has many years of  experience in
various  financial  fields.  In  BAK's  technical  team,  the  company  has  two
world-class  Li-ion  battery  experts.  The first,  Dr. Huanyu Mao,  BAK's Chief
Technology  Officer  is a PhD,  with  over 13 years  of  working  experience  in
developing  battery cells for laptop use and is widely  recognized as one of the
leading  authorities  in the world  within this  field.  He assisted in starting
Lishen  (the  third  largest  lithium-ion  battery  manufacture  in  China)  and
supervised Lishen's successful completion of Motorola's  certification  process.
Dr. Mao is also well known in the Li-ion battery  industry for his research with
Polymer cells and HEV Batteries.  In 1999, Dr. Mao won the  "Friendship  Award",
which is the highest  award for foreign  workers in China,  sponsored by China's
Central Government to recognize his contribution to new technology  development.
In February 2002, he won the "State Science and Technology  Cooperation  Award",
also given by China's Central  Government,  in appreciation for his contribution
to the Chinese economy.  BAK's second technical expert,  Dr. Qingyi Yao, is also
well known in the space.  Dr. Yao has gain great success in the research of high
capacity  laptop PCs  batteries.  The specific  battery  created by his team has
already obtained the European Union's ("EU's") safety certificate.

BAK has a clear short and long-term plan. During the next two years, the Company
plans to emphasize  its push into the global  original  cellular  phone  battery
market ("OEM"),  the electric power tools battery market,  and to  significantly
increase the production of laptop batteries.

With the proceeds from this offering,  the Company will build a production  line
for laptop  batteries  ("18650") to a monthly output of about 2.5 million pieces
by June  2005.  In two to three  years,  BAK  plans to  begin  selling  into the
electric bicycle battery market.  In conjunction  with China FAW Group,  China's
largest  automobile  manufacturer,  the Company has also recently begun research
into the Hybrid Electric  Vehicle ("HEV") battery market.  BAK's objective is to
reduce  the  cost of the  Li-ion  battery  to the same  level as that of  Nickel
Cadmium ("NiCd") and Nickel Metal Hydride ("NiMH")  batteries,  which will among
other things make BAK's Li-ion battery a much more desirable alternative for the
HEV  market.  BAK's R&D center is  continuing  to make  significant  progress on
Li-ion battery manufacturing cost reductions and new technologies.

<PAGE>

[*****].

Summary of Historical and Projected Financial Data

Over the next two years, BAK anticipates its net income will continue to grow at
an average rate of [*****].  In the four years since its  founding in 2001,  BAK
has  increased  its monthly  production  to 11.8  million  units,  resulting  in
revenues  with a cumulative  annual  growth rate of more than 350% over the past
two years. The Company is projecting  revenues in excess of $110 million for the
fiscal year ending  September  30, 2005,  compared to $64.1 million for the most
recent fiscal year. Based upon its experience,  management estimates net profits
will grow 68% in 2005 and [*****] in 2006 or an average of [*****], resulting in
net profits of $12.1 million  dollars in fiscal year 2005 and [*****] million in
fiscal year 2006.

As part of a proposed $17 million equity financing,  existing  shareholders will
escrow 10% of their BAK's stock, to be used as compensation for investors if the
Company fails to deliver the projected profit. (For a more detailed  description
of the investment terms please reference section 7.1 of this business plan.)

      Table 1-1: Summary of historical and projected financial information

<TABLE>
<CAPTION>
($ in 000,8.265RMB/$1.00)                               FYE September 30,
                            ---------------------------------------------------------------------------------------
                                2002           2003           2004           2005           2006           2007
                            ------------   ------------   ------------   ------------   ------------   ------------
<S>                         <C>            <C>            <C>            <C>                    <C>            <C>

Revenues                    $    3,050.2   $   20,266.6   $   64,088.3   $  110,103.3           ****           ****
Gross Income                $      536.5   $    5,694.7   $   14,458.0   $   22,767.3           ****           ****
Gross Margin (%)                    17.6%          28.1%          22.6%          20.7%          ****           ****
Net Income                  $      719.7   $    3,765.3   $    7,226.4   $   12,111.3           ****           ****

Total Assets                $    3,778.7   $   23,008.9   $  103,168.3   $  141,880.6           ****           ****
Total Equity                $    1,929.6   $    5,682.1   $   23,797.8   $   52,499.7           ****           ****

Revenue Growth                        NA            564%           216%            72%          ****           ****
Net Income                            NA            423%            92%            68%          ****           ****
</TABLE>

For more detailed projections,  see the projections and accompanying assumptions
in Part 9 of this business plan.

PART 2:  INDUSTRY INFORMATION

2.1 Industry Introduction:  The Li-ion battery industry is growing strongly.

World  production  of Li-ion  batteries  has  increased  30 times in the past 10
years. Since 1992, when Sony first commercialized Li-ion batteries, the Japanese
controlled  the Li-ion  battery  market.  The  market's  growth has been  driven
primarily  by the spread of the  mobile  phone.  (Data  source:  Portable  Power
Conference & Expo, September 13, 2004, San Francisco.)

Li-ion batteries are the most attractive rechargeable batteries available in the
market to date.  Lithium-based  batteries can be categorized as non-rechargeable
and  rechargeable.  Nowadays,  non-rechargeable  Lithium batteries are typically
used in low-power consumer  electronics  applications such as film cameras,  and
rechargeable  Lithium  batteries (or "Li-ion") are used in heavy power consuming
electric appliances such as cellular  telephones,  camcorders,  digital cameras,
laptops and so on. The  rechargeable  Li-ion  market is growing much faster than
the non-rechargeable lithium battery market.

Compared  to other  kinds  of  rechargeable  batteries  such as  Nickel  Cadmium
("NiCd") and Nickel Metal Hydride  ("NiMH"),  Li-ion batteries have several very
attractive features:

     - a high operational  voltage  (normally 3.6v in market, it is 3 times more
     than NiCd or NiMH batteries),
     - lower self-discharge (<8% per month, 30% less than NiCd and 40% less than
     NiMH),
     - long cycle life (can be used thousands of times), and
     - no memory effect (unlike NiCd).

<PAGE>

Table 2-1 below outlines these differences.

            Table 2-1: Comparison of NiCd, NiMH and Li-ion Batteries
----------------------------- ---------------------------- --------- -----------
Feature                                  NiCd                NiMH       Li-ion
----------------------------- ---------------------------- --------- -----------
Operation voltage                         1.2                1.2         3.6
----------------------------- ---------------------------- --------- -----------
Gravimetric Energy Density                50                65~105       140
Wh/kg
----------------------------- ---------------------------- --------- -----------
Volumetric Energy Density                 150                200         300
Wh/L
----------------------------- ---------------------------- --------- -----------
Cycle life                                500                500         1000
----------------------------- ---------------------------- --------- -----------
Self-discharge %/month                   25~30              30~35        6~9
----------------------------- ---------------------------- --------- -----------
Rapid charge                           Not good              Good        Good
----------------------------- ---------------------------- --------- -----------
Over charge                              Fair                Good      Not good
----------------------------- ---------------------------- --------- -----------
Memory effect                             Yes                 No          No
----------------------------- ---------------------------- --------- -----------
Environmental Issues              Release of cadmium,        None        None
                                      (poisonous)
----------------------------- ---------------------------- --------- -----------
    Information source: World Chemist 5th issue, 2002

Li-ion is taking  market  share from other  technologies.  According to Avicenne
Development, an industry research group, the world NiCd market was $1 billion in
2003,  and  shrinking  at an annual  10%  rate.  The world  NiMH  market  was an
estimated  $640 million in 2003,  shrinking at a 15% annual rate. By comparison,
the Li-ion market has compound annual  worldwide growth rate of 23.2% during the
years  2003-2006,  and estimates  through 2010 project similar growth rates. The
newest  technology,  Lithium  polymer,  has already  reached $300mm in worldwide
market size and is growing 20% per annum.

Rechargeable   lithium   polymer   batteries   are  a  new   technology   to  be
commercialized.  The lithium salt  electrolyte  used in lithium polymer has many
advantages  over  lithium ion design.  These  batteries  are less  hazardous  if
mistreated.  Furthermore,  since no metal  battery  cell  casing is needed,  the
battery  can be lighter and it can be  specifically  shaped to fit the device it
will  power.   Because  of  the  denser  packaging  without  the  holes  between
cylindrical  cells and the lack of metal casing,  the energy  density of Li-poly
batteries is over 20% higher than that of a classical  Li-ion  battery.  Lithium
Polymer  technology still has problems with internal  resistance and life cycle.
Other  challenges  include longer charge times and the slower maximum  discharge
rates compared to more mature technologies.

Worldwide Li-ion battery  production is shared by Japan, China and Korea. As the
first county to research  Li-ion  battery  techniques,  Japanese  Li-ion battery
technology  has  historically  been the most advanced in the world,  and Japan's
manufacturing equipment is mostly automatic. China and Korea imported techniques
and equipment, put their own efforts into research and production practices, and
have been making significant  production  improvements and research discoveries.
China has become  Japan's  biggest  competitor by offering  quality  products at
lower  prices.   Korea  is  also  growing  quickly  in  this  segment.   Leading
manufacturers by country are listed in table 2-2 below.

<PAGE>

              Table 2-2: Leading World Li-ion Battery Manufacturers

--------------------- ----------------------------------------------------------
      Country                                 Company
--------------------- ----------------------------------------------------------
       Japan          Sanyo, Sony, Panasonic, GS, NEC, Hitachi
--------------------- ----------------------------------------------------------
       Korea          LG, Samsung,
--------------------- ----------------------------------------------------------
       China          BYD, BAK, Lishen, B&K, Huyo, Coslight
--------------------- ---------------------------------------------------------

The  Japanese  manufacturers  are  also  less  dominant  in the  Li-ion  market.
According to Avicenne,  in 2003 industry leader Sanyo controlled 40% of the NiCd
market  and  55% of the  NiMH  market,  but  only  31%  of  the  Li-ion  market.
Matsushita,  #2 in 2003 in both the NiCd and NiMH market  share with 26% and 25%
respectively, had only 11% of the Li-ion market.

2.2 World Li-ion Industry Trends

Li-ion  batteries  are now  replacing  NiCd and NiMH  battery.  In recent years,
wireless  electronic  product  manufacturers  and  consumers  have  demanded the
performance available only in Li-ion rechargeable batteries. Today in the global
rechargeable battery market, Li-ion battery market share keeps increasing,  from
20% in 2001 to 38% in 2003.  According to  projections  sourced from the Chinese
Battery  Annual Report from April 2004, the Li-ion battery market is expected to
experience a 23.2% compound annual growth rate over the next three years,  which
by 2006 is  projected  to result in a 56%  share of the  worldwide  rechargeable
battery market.

Table  2-3:  Sales  of  Li-ion  batteries  compared  with  total  sales  of  all
rechargeable batteries (in US$ Millions)

              Polymer    Li-ionl   NiMH      NiCD     Total
              -------    -------   ------   ------    -----
1991                                100     1,500     1,600
1992                                150     1,550     1,700
1993                       <50      250     1,900     2,200
1994                       150      800     2,050     3,000
1995                       500     1,050    2,150     3,700
1996                      1,200     850     1,750     3,850
1997                      1,750     850     1,650     4,250
1998                      1,850     850     1,400     4,100
1999            <50       2,450    1,100    1,400     5,000
2000            200       2,800    1,300    1,200     5,500
2001            250       2,400     700      650      4,000
2002            250       2,400     650      950      4,250
2003            350       3,405     600      900       5300
2004            400       4,350     550      950      6,250
2005            300       4,200     560      940      6,000
AAGR 1991-2000 = 15%
AAGR 2001-2005 = 11%
(actual amounts cannot be determined)

Data  source:  Portable  Power  Conference  &  Expo,  September  13,  2004,  San
Francisco.

<PAGE>

The  emergence  of  multiple  applications  has  driven the growth of the Li-ion
battery market.  The demand for Li-ion batteries in laptops and camcorders keeps
increasing,  as is demand for power mobile phone batteries.  More recently,  the
pocket PC and portable  video games have become the new target market for Li-ion
batteries.  In addition  to these uses,  there is a huge  untapped  market:  the
development of power tools,  electric scooters and pure electric cars and Hybrid
Electric  Vehicles  ("HEV"),  all provide new potential  applications  of Li-ion
technology.  All these changes have driven Li-ion battery growth.  In 2003-2006,
the world  Li-ion  battery  manufacturing  compound  growth rate is projected at
23.2%.

2.3 China Li-ion Industry Trends: Taking market share.

The average annual  production growth rate in China has been at 140% since 2001,
well  ahead  of the  worldwide  growth  rate  and the  result  of  China's  huge
production  capacity  and low  product  costs.  Spurred by the growth of BAK and
similar  companies,  Li-ion battery production volume reached 270 million pieces
in 2002, 20% of the global market share. China production volume exceeded to 500
million  pieces in 2003,  which was almost 30% of the  global  market.  With the
success of BYD, BAK, B&K,  Lishen,  Huanyu,  and  Coslight,  the Chinese  Li-ion
battery industry is projected to grow 30% annually over the next 2-3 years.

Compared to Japan and Korea,  China's  production  advantages can be categorized
into three main areas:

(1)  Low product cost. With abundant labor  resources and low materials  prices,
     Chinese companies can use semi-automated  product lines to reduce costs and
     offer  lower  prices.  The low price  marketing  strategy  used by  Chinese
     companies  is the main reason that Li-ion  batteries'  prices have  dropped
     worldwide.
(2)  China is the biggest  consumer with the fastest  growing and highest mobile
     phone sales volume in the world.
(3)  China has built an  integrated  industry  chain from raw  material to sales
     networks  for  Li-ion  batteries,   resulting  in  significant   production
     efficiencies and lower costs.

The  emergence of Chinese  companies  such as BAK has created  competition  with
market leader SANYO for market share.  BAK's output grew  dramatically  over the
last year to its  current  11.8  million  pieces  per  month.  BAK's  growth has
separated  itself from other  second tier players in China such as B&K and Huyu.
In  addition,  the  quality of BAK's  products,  meet or even exceed that of the
Japanese companies in several key areas.

(1)  High capacity:  BAK uses  technology  resulting in higher storage  capacity
     than Japanese products
(2)  High discharge  voltage:  BAK uses certain raw materials,  which management
     believes are better than those used by Japanese or other Chinese companies.
(3)  Low internal resistance: most Chinese manufacturers use certain electrolyte
     ingredients,  which more  effectively  reduce  internal  resistance.  Lower
     battery  resistance  results  higher power and better  performance at lower
     temperatures.

The net result of these three  factors,  is a BAK cell phone battery with longer
talking time.

<PAGE>

These  differences  can be seen in the  specifications  described  in table  2-4
below.

        Table 2-4: Li-ion Specifications for Chinese Companies (BAK,BYD)
                  Compared to Japanese Companies (Sanyo, Sony)
---------------------------------------- --------- --------- --------- ---------
              Feature                      BAK       BYD       SANYO     SONY
---------------------------------------- --------- --------- --------- ---------
Operating voltage (V)                      3.7       3.7        3.6      3.6
Capacity (mAh)                             750       750        630      630
Internal resistance (mC)                   <50       <60        <60      <60
Self-discharge (%/month)                    10        10         10       10
Time remaining above 3.6V at discharge    45-52     28-33      40-45    40-45
(minutes)
Cycle life                                 >500      >500       >500     >500
Safety                                     Good      Good       Good     Good
---------------------------------------- --------- --------- --------- ---------

BAK has gained a dominant  position the  replacement  Li-ion  battery  market in
China. From the time of the company's  formation in 2001, BAK has focused on the
replacement  market  as the  segment  where it wanted to  establish  a  dominant
position.  The  replacement  market is a special  section of the overall  Li-ion
battery market.  Replacement  batteries are not the original batteries that come
with the cell phone  purchase.  This  market  provides  customers  with a second
replacement  battery or  additional  batteries  for  extended  talking  time and
standby time. The replacement  batteries are often sold with new cellular phones
as a promotional  technique,  or sold to individuals who need more battery packs
through retail channels.  Also there is an extremely  active pre-owned  cellular
phone market in China as most  cellular  phones in China are  continuously  used
until the very end of the phone's life.  This market is similar to the pre-owned
car  market in the US.  The new types of phones  are  outdated  in big cities in
about one or two years. Then the phones are collected and sold to smaller cities
or towns at lower prices.  After  another few years,  these phones are collected
and sold again to some rural areas at even lower prices.  However in many cases,
the phones are still  functioning but the batteries are often not good enough to
power  the  phones.  There is a need to  replace  the  original  batteries  with
replacement batteries to keep the phones functional.  Naturally, these batteries
have to be at a fairly low price point.  BAK's  products fit this  competitively
priced requirement.

With a constant focus on increasing market share, BAK currently possesses over
60% of the overall replacement battery market as shown in the following table:

              Table 2-5: Chinese Replacement Battery Market Shares

Cell Suppliers     Units/Month (in 000)     Share
---------------    --------------------   --------
YinsiQi                           1,320       7.4%
Tianmao                           1,020       5.7%
AeroSpace                         1,320       7.4%
Funghua                             440       2.5%
B&K                                 880       5.0%
HYB                                 660       3.7%
HPS                               1,100       6.2%
BAK                              11,000      62.0%
                   --------------------   -------
Total                            17,740     100.0%

            Source: BAK Market Investigation Group, September, 2004.

In the future,  BAK will continue to  consolidate  its dominant  position in the
replacement  market,  and will also focus on increasing  its market share in the
first tier OEM market through technological innovation,  quality control systems
and cooperation with Motorola and other world-class companies.

2.4 Li-ion market segmentation and trends

The Li-ion market has several key  applications  which are  experiencing  strong
growth.

Mini Li-ion  rechargeable  batteries,  used in small  electronics,  are the most
established and largest market  application.  Table 2-6 below shows the usage of
Li-ion batteries in Japan by application.  Mobile phone applications  remain the
largest,  at  57.4%.  By  comparison,  in  China,  due  to  the  relatively  low
commercialization rates of laptops and camcorders, the mobile phone market share
is even higher.  These new  applications  provide an excellent  opportunity  for
growth in China.

<PAGE>
<TABLE>
<CAPTION>

               Table 2-6: Li-ion battery usage by segment in Japan
         ------------------------------------------- -----------------
         Equipment                                   Percentage
         ------------------------------------------- -----------------
         Mobile phones                               57.4
         ------------------------------------------- -----------------
         Laptop computers                            31.5
         ------------------------------------------- -----------------
         Camcorders                                  7.4
         ------------------------------------------- -----------------
         Other electric products                     3.7
         ------------------------------------------- -----------------
Information Source: Chinese Battery Association Annual Report, April 2004

2.4.1.1 Mobile phones
The Chinese  consumers  are the most likely to update their cell phones than any
other  country in the world,  according  to an industry  report from the Chinese
Li-ion battery industry in 2003. This report also projects mobile user growth at
30% per year. Table 2-7 below outlines these growth rates:

Table 2-7: 2003-2006 Projections of global mobile and battery market growth
----------------------------------- ----------- ------------- ------------- -------------
                                       2003          2004          2005         2006
                                     (Actual)    (Projected)   (Projected)   (Projected)
----------------------------------- ----------- ------------- ------------- -------------
<S>                                 <C>         <C>           <C>           <C>
Mobile sales volume                   519/60        635/70        762/80       900/90
 Global/China(units, in millions)
----------------------------------- ----------- ------------- ------------- -------------
Battery set sales volume              934/108     1,143/126     1,372/144     1,620/162
 Global/China(units, in millions)
----------------------------------- ----------- ------------- ------------- -------------
Battery replacement                   259/30        317/35        381/40       450/45
 Global/China(units, in millions)
----------------------------------- ----------- ------------- ------------- -------------
Total Battery need                   1,194/138    1,460/161     1,753/184     2,070/207
Global/China(units, in millions)
----------------------------------- ----------- ------------- ------------- -------------
</TABLE>

Battery set sales volume = 1.8iA Mobile sales volume
Battery replacement = 0.5iATotal mobile volume
Total battery need = Battery set sales volume + Battery replacement
Global Source: Gartner Group; China Source: Instat/MDR

2.4.1.2 Laptop computers. Along with cellular phone batteries,  laptop batteries
will be a critical  source of growth for battery  companies.  Only six companies
worldwide  currently  supply Li-ion battery laptop PCs cells (which are combined
into battery  packs):  Sony,  Sanyo and  Matsushita in Japan;  Samsung and LG in
Korea;  and E-ONE Moli Energy in Vancouver,  Canada.  Toshiba  (Japan)  recently
exited the market.

Laptop batteries are more difficult to manufacture than those for cell phones,
for several reasons:

1.   Uniformity.  Cell phones only use one cell,  while laptops use at least six
     cells, and sometimes twelve.  For single cell  applications,  variations in
     individual batteries do not have much impact on the equipment.  If even one
     cell is not uniform in a multiple cell  application  the performance of the
     entire  battery  pack  will be  degraded  rapidly.  To  assure  uniformity,
     companies typically utilize more automated equipment in production

<PAGE>

2.   There are high safety  standards  (these batteries have high energy density
     per cell, about 3 times higher than cell phones).

3.   BAK is currently making a small quantity (10,000 daily) of laptop batteries
     manually,  and will need to import  automated  equipment  to meet laptop PC
     battery specifications.

4.   BAK's current  laptop cells are being sold instead for other  applications,
     such as printers or  portable  DVD  players.  Customers  are local  Chinese
     companies.

<PAGE>

                              Table 2-8 PC Forecast
                         Worldwide Portable PC Forecast
                      (actual amounts cannot be determined)

                                       Shipments (000)
                                       ---------------
                        2002               31,000
                        2003               37,500
                        2004               44,000
                        2005               51,000
                        2006               56,000
                        2007               62,500

BAK believes there are significant opportunities to sell Li-ion laptop batteries
in China. Currently,  all laptops use either Japanese batteries, or, to a lesser
extent,  Korean batteries.  According to presentations from the IIT Corp. Japan,
(2004 Power  Conference,  September  2004,  San  Francisco),  445 million  cells
(estimated 10 cells/pack)  will be sold worldwide in 2004 at an average  $3-3.50
price per cell. Six to Twelve Li-ion cells are combined into battery packs,  and
cost about 70% of the total battery pack cost, resulting in an average price per
(12) battery pack of $45.  Battery packs are being  assembled  mostly in Taiwan.
However,  management  estimates that at least 50% of Taiwan companies are moving
their laptop  manufacturing to the Chinese mainland,  and manufacturers  will be
seeking China-based battery sources. Batteries manufactured in China should have
significant  competitive  advantages.  Despite  the higher  level of  automation
required,  significant  higher-level  labor such as engineers are required,  and
China will  benefit  from lower labor  costs.  China also has a  materials  cost
advantage.  Overhead in China is much lower (land, housing,  building,  energy);
environmental  controls  not  as  stringent  in  China  as in  Japan;  and  some
government  support is  available,  such as tax  breaks.  Finally by buying from
China  instead of Japan,  laptop  manufacturers  will not have to pay 12% duties
they pay if they import from Japan,  and  China-based  suppliers  will allow for
easier logistics.

Table 2-9(pound)(0)2003-2006 Global/China markets for Laptops and battery packs

---------------------------- ---------- ------------- ------------- ------------
(units, in millions)            2003        2004           2005         2006
                              (Actual)   (Projected)   (Projected)   (Projected)
---------------------------- ---------- ------------- ------------- ------------
Laptop sales volume            38/1.3      44/1.8         51/2.5       56/3.4
 Global/China
---------------------------- ---------- ------------- ------------- ------------
Total battery cell demand      380/13      440/18         510/25       560/34
Global/China
---------------------------- ---------- ------------- ------------- ------------
Total Battery Cell Demand = 10xLaptop Sales Volume
Source: IDC; China: CCW Research

<PAGE>

2.4.1.3  Camcorders  and digital  cameras.  A report from IIT, a premier  global
market  intelligence and advisory firm in the information  technology of Battery
industries, indicates that the Li-ion batteries shipment for Digital cameras was
16.3 million units in 2001 growing to a projected 88 million units by 2005.  The
global Li-ion  battery  shipment for  camcorders  was 47.5 million units in 2001
growing  to a  projected  87 million by 2005.  Table  2-10 below  outlines  this
opportunity.

Table  2-10(pound)(0)2003-2005  global  Li  -  Ion  market  demand  for  digital
camera/camcorder

--------------------------------------- ----------- ------------- --------------
(units, in millions)                        2003         2004          2005
                                           Actual     Projected     Projected
--------------------------------------- ----------- ------------- --------------
Li -Ion Batteries for digital cameras       58.6         75.1           88
--------------------------------------- ----------- ------------- --------------
Li -Ion Batteries for camcorders            73.7         70.9           87
--------------------------------------- ----------- ------------- --------------
Total battery need                         132.3         146           175
--------------------------------------- ----------- ------------- --------------
Data  source:  Portable  Power  Conference  &  Expo,  September  13,  2004,  San
Francisco.

2.4.2  High  power and large  size  Li-ion  batteries  High power and large size
rechargeable Li-ion batteries have 2 distinguishable differences compared to the
batteries  used in cellular  phones and laptops:  1) single cell capacity can be
from 10 Ah to 100 Ah or more, while the cellular phone is normally about 1 Ah or
less;  and 2) the  discharge  power is much  higher,  can be as high as 10C rate
(effectively  discharging all the battery's energy within 0.1 hour), compared to
0.5C rate (effectively  discharging all the battery's energy within 2 hours) for
laptops. These batteries are projected to be major contributors to the Company's
future  growth.  There are a series of new  applications  that would be users of
high power and large size Li-ion batteries.

2.4.2.1 Pure Electric  cars.  The usage of Li-ion battery for pure electric cars
is  increasing,  and the market share of Li-ion  batteries  in electric  cars is
projected  to be 20% by 2005,  particularly,  as the  price  of these  batteries
decreases.  Electric car sales volume is projected to be 720 thousand  sets,  or
1.2% of the global car market  share,  in 2005,  growing to 1.7 million  cars by
2010,  or 2.6% of the global  market.  However,  because pure electric cars need
long recharge time, this is a hurdle to prevent it from wide use on the roads.

2.4.2.2 Electric  bicycle.  The technology of using Li-ion batteries in electric
bicycles has been developed and is expected to be commercialized soon. China has
400 million  bicycles;  if 2% of them are  replaced by electric  bicycles,  then
there will be a market for an additional  2.4 billion Wh of battery  energy.  If
high power and large size Li-ion cells are made with 10 Ah (36Wh) each, there is
a need  for an  additional  67  million  of such  large  and high  power  cells.
According  to a survey  conducted  by the  Association  of Chemical and Physical
Industry of China, in the five biggest cites in China,  50% of people would like
to upgrade their bicycles to electric bicycles.

2.4.2.3  Hybrid  Electric  Vehicles  ("HEV").  HEVs are the most  practical  gas
efficient vehicles running on the roads worldwide,  with gas mileages as high as
65 miles per  gallon.  HEVs are  equipped  with a small  gasoline  engine and an
electric motor powered by rechargeable  batteries.  HEVs are gaining  widespread
support  and are  expected to be a  mainstream  passenger  car in the  worldwide
automobile market. (See Figure 2-4). Current rechargeable batteries used in HEVs
are all NiMH. Li-ion batteries would have many beneficial  characteristics  in a
HEV application;  however, at the present time they remain cost prohibitive. BAK
has the most cost efficient Li-ion battery manufacturing capabilities with costs
nearing that of NiMH. A technology  breakthrough in the HEV industry is possible
as BAK  drives  down its cost of  producing  Li-ion  batteries.  For  additional
information on BAK's strategy on the HEV market, see Section 6.3.

<PAGE>

                     Table 2-11 HEV Six Year Market Forecast

                                   HEV shipment (1,000units/CY)
      Calendar Year                           TOTALS*
      -------------                ----------------------------
           01CY                                100
           02CY                                110
           03CY                                180
           04CY                                240
           05CY                                390
           06CY                                570
           07CY                                800
           08CY                                1100
           09CY                                1500
           10CY                                2050

    *Represents aggregated amounts from the following vehicle manufacturers:
        Fiat, Renault, PSA, VW, Opel, DC (Daimler), BMW, Audi, GM, Ford,
           DC (Chrysler), Suzuki, Daihatsu, Subaru, Mazda, Mitsubishi,
                             Honda, Nissan, Toyota.
        Actual amounts for each vehicle manufacturer cannot be estimated.

Source: IIT Corp, Japan, The 20th  International  Seminar & Exhibit on Primary &
Secondary Batteries, March 17, 2003, Fort Lauderdale, FL, USA

2.4.2.4 Electric scooters.  High power Li-ion battery technology  provides a new
opportunity  in electric  motor bikes.  While  electric motor bikes exist in the
market  today,  they  face  mileage  and  speed  limitations.  China  motorcycle
manufacturers  are also  starting to research  and develop the use of high power
Li-ion batteries.

2.4.3  Li-polymer  battery.  Li-polymer  batteries are also called LIB Laminated
cells. As previously mentioned,  the main difference between conventional Li-ion
and  Li-polymer  batteries  is the  casing  material;  most  of  the  Li-polymer
batteries  use soft plastic  sheet to wrap up the  internal  part of the battery
while the conventional  Li-ion batteries use solid cases made of either steel or
aluminum to contain  the  internal  part.  Li-polymer  battery  retains the same
chemistry, even the same internal structure as the conventional Li-ion a lithium
ion battery.

The most  significant  advantage of the  Li-polymer is that the batteries can be
made very thin. This allows equipment such as Personal  Digital  Assistant (PDA,
e.g. Palm V, i-Pod) and some thin  cellular  phones or games to be made thinner,
as well as small  electronic  equipment  such as Blue Tooth  headsets  and smart
cards.  The  following  Table  2-12 shows the  market  trends of the  Li-polymer
batteries:

<PAGE>

              Table 2-12 Li-polymer Battery Market Trends by Sales
                      (actual amounts cannot be determined)

                             Sum of Sales
                            (US$ Millions)
                            --------------
             1998                 0
             1999                 40
             2000                190
             2001                <190
             2002                300
             2003                350
             2004                550
             2005                520

Data  source:  Portable  Power  Conference  &  Expo,  September  13,  2004,  San
Francisco.

BAK has this technology  ready.  With its advantage of low cost production,  BAK
will advance a significant market share in the Li-polymer batteries.

       Table 2-13: Li-polymer Market Prospects: Unit Growth Will Continue
                      (actual amounts cannot be determined)

          Year                     (Pieces in Millions)
        -------                    --------------------
          1998                               0
          1999                               2
          2000                              18
          2001                              27
          2002                              50
          2003                              64
          2004                              84
          2005                              108
          2006                              122

Source: Avicenne Forecast; The Worldwide Rechargeable Battery Market Reporter of
Taiwan-Dec.2003

<PAGE>

PART 3:  THE COMPANY

3.1 History

BAK was founded on 3rd August 2001 by its current CEO, Xiangqian Li, initially
to manufacture Li-ion batteries for cell phones. A timeline of key company
events is listed below:

August 2001       Shenzhen BAK Battery Co., Ltd established

June 2002         BAK, with headquarters in Shiyan, Shenzhen,  begins operation.
                  Initial monthly output in 2001 is about 220,000 units

October 2002      BAK  authorized to set up a  postdoctoral  workstation  by the
                  National Ministry of Personnel

November 2002     BAK passes the EU CE attestation

January 2003      BAK becomes Shenzhen Hi-Tech Enterprise

February 2003     BAK passes the SaiBao attestation (cell phone manufacturer)

March 2003        BAK aluminum  case battery  plant  starts  operation,  monthly
                  output reaches 2.4 million pieces

June 2003         BAK monthly  output reaches 6.6 million  pieces,  quantity and
                  quality continue to improve

September 2003    BAK passes  ISO14001:  1996  environmental  management  system
                  certification  and  ISO9001:  2000 Quality  management  system
                  certification   October2003  BAK  industrial  park  foundation
                  breaks ground in Longgang District, Shenzhen

September 2003    BAK cylindrical battery Yangguang sub-plant starts operations

December 2003     BAK total monthly capacity  increases to 11 million pieces and
                  monthly output increases to 8.8 million pieces

December 2003     BAK receives UL designation  August 2004 BAK  industrial  park
                  aluminum can battery plant starts up operations.

October 2004      BAK total monthly capacity  increases to 15 million pieces and
                  monthly  output  increased to 11.8 million  pieces to make BAK
                  one of the largest Li-ion battery manufacturers in the world.

The Company's address is:
        BAK Industrial Park
        No. 1 BAK Street, Kuichong Town,
        Longgang District, Shenzhen, China.

The  Company  is  registered   with  the  Shenzhen   Industrial  and  Commercial
Administration Bureau. There are currently 16 shareholders of the company. Table
3-1 below shows the ownership of the Company.

<PAGE>

                         Table 3-1: Company Stockholders
---------------------------------------- -----------------------
Stockholder                                    Share (%)
---------------------------------------- -----------------------
Xiangqian Li                                      68%
---------------------------------------- -----------------------
Jinghui Wang                                      12%
---------------------------------------- -----------------------
Fenghua Li                                         8%
---------------------------------------- -----------------------
Yunfei Li                                         4.5%
---------------------------------------- -----------------------
Other 12 stock holders                            7.5%
---------------------------------------- -----------------------

3.2 Company organization framework

                 Table 3-2: Company organization, key management

                                      Chief
                                    Executive
                                     Officer

                                  Xiangqian Li
                                        |
                                        |
                                        |
--------------------------------------------------------------------------------
        |                   |                        |                  |
        |                   |                        |                  |
----------------     ----------------        ----------------   ----------------
      Chief               Chief                    Chief          Vice President
    Financial           Technology               Operations        Of Production
     Officer             Officer                  Officer

   Yongbin Han        Huanyu Mao, PhD       Baicheng Zhou, PhD       Shumin Li
----------------     ----------------        ----------------   ----------------

3.3 Employees and Management

BAK currently  has over 7,000  employees  led by a highly  qualified  management
team.  Table 3-3 below outlines the educational  levels of the Company's  senior
and middle management.

                Table 3-3: Management's education qualifications
--------------------------------------------------------------------------------
                                         Statistics
--------------------------------------------------------------------------------
  PhD         Master      Bachelor      College   High/Tech School       Total
--------------------------------------------------------------------------------
   4            36           263          108            114              525
--------------------------------------------------------------------------------
  1%            7%           49%          21%            22%             100%
--------------------------------------------------------------------------------
                       Last updated: July 31, 2004
--------------------------------------------------------------------------------

<PAGE>

Senior Management.  BAK's senior management team consists of five key people.

                          Table 3-4: Senior management
----------------------------- ----------------------------------- -------
Name                          Title                               Age
----------------------------- ----------------------------------- -------
Xiangqian Li                  Chief Executive Officer             36
----------------------------- ----------------------------------- -------
Yongbin Han                   Chief Financial Officer             35
----------------------------- ----------------------------------- -------
Huanyu Mao, PhD               Chief Technology Officer            52
----------------------------- ----------------------------------- -------
Baicheng Zhou, PhD            Chief Operations Officer            30
----------------------------- ----------------------------------- -------
Shumin Li                     Vice-President of Production        50
----------------------------- ----------------------------------- -------

Mr. Xiangqian Li, Chief Executive Officer.  Mr. Xiangqian Li invested 20 million
RMB ($2.4  million  USD) and  founded BAK in 2001.  In four years  time,  he has
increased  monthly  battery  output from 200,000 to 11.8 million  pieces growing
revenues from $3 million to a projected  $110 million this year. He provides the
inspiration and teambuilding expertise to the Company.

Because of the strong  culture he has  created at BAK,  no manager  has left BAK
since it was  established in 2001. He has managed the Company's high growth rate
while maintaining the Company's fiscal health.

Mr. Li's prior work experience was in the securities  industry.  From March 1994
to May 1995 he was trading equities and debt for his own account;  From May 1995
to June 1998, he worked at China International Trust and Investment Corporation,
Jilin office, as Manager of the Credit  Department.  Mr. Li was born in 1968. He
received a bachelor's  degree in Lanzhou Railway  Institute  in1991. In 2000, he
began part-time study of quantitative economics in Jilin University, to obtain a
Doctor's degree.

Yongbin Han, Chief Financial Officer
Mr. Han, is a Chinese  certified  public  accountant  and Chinese  certified tax
agent. He is proficient in Chinese financial systems and has many years of audit
work experience.  Mr. Han was born in 1969; in July 1995 he graduated from Chang
Chun  Taxation  College  with a  bachelor's  degree in  accounting  in the Jilin
province.

Huanyu Mao PhD, Chief Technology Officer
Dr. Mao, a technological leader in the field of Lithium ion battery development,
has worked with the company as a consultant  since the beginning of 2004 and has
been with the company  full time since the second half of 2004.  Previously,  he
was with Tiajin  Lishen  Battery  Joint  Stock  Corporation,  the third  largest
lithium-ion  battery  manufacturer in China,  based in Tiajin.  Dr. Mao moved to
China in early 1997 and helped found Lishen.  (www.lishen.com.cn).  He built the
first pilot line at Tianjin Institute of Power Sources in 1997. As the principal
engineer,   he  was  responsible  for  all   operational   elements,   including
construction, equipment specification and acquisition (primarily via Japan), raw
materials,  and  commercialization of the production process.  From his years of

<PAGE>

experience,  Dr. Mao has in-depth equipment,  materials and production expertise
in China,  Korea and Japan.  He has been involved in every aspect of operations,
from production planning, worker training and quality control method settings in
every process,  to error  prevention,  trouble shooting,  spare parts,  material
stock control and logistics.

While at Lishen,  Dr. Mao combined the  technology  and materials from different
countries and  successfully  developed  Lishen's winding type of polymer lithium
ion  cells,  which have been  mass-produced  under his  supervision.  Methods of
production  were  developed  to  maximize  use of  existing  liquid  lithium ion
equipment and materials,  making the  manufacturing  simpler and lower cost than
its Japanese counterparts.

Within 4 years of  startup,  Lishen  became  the  largest  automated  production
lithium  ion  manufacturer  in  China  and the 3rd  largest  overall  in  China,
supplying  over 4 million  cells to Motorola and other leading cell phone makers
per month in the OEM market.  Motorola Energy System Group (ESG) has qualified 7
types of cylindrical  and prismatic  Lithium ion batteries and 1 type of polymer
cell for Lishen. Meeting Motorola's standards for so many types of cells was one
of Dr. Mao's key accomplishments.

Prior to Lishen,  Dr. Mao worked at NEC Moli Energy in Canada from 1991 to 1996,
initially as a Research Scientist in Lithium ion battery research.  During the 5
years with Moli,  he was listed as the  inventor on 7 US Patents  and  published
various articles on Li-ion batteries.

In 1999,  Dr.  Mao won the  highest  award for  foreign  workers  in China,  the
"Friendship  Award",  sponsored by China's  Central  Government to recognize his
contribution  to new technology  development for China. In February 2002, he won
the "State  Science and  Technology  Cooperation  Award",  also given by China's
Central Government, in appreciation for his contribution to the Chinese economy.
He is a Canadian citizen, with a permanent residence in Vancouver, B.C., Canada.
He  earned a Ph.D.  in  Electrochemistry  in  Conducting  Polymers  in 1990 from
Memorial  University of Newfoundland,  Canada and had one year Postdoctoral work
at Simon Fraser University,  British Columbia in  Electrochemistry of Conducting
Polymers. During this time he published 6 papers in major US chemistry journals,
including Journal of the American Chemical Society.

Baicheng Zhou, PhD, Chief Operations Officer
Mr. Zhou was born at 1974, Changchun City, Jilin Province; In 1997, he graduated
from  Jilin  University  with  a  Bachelor's   degree  and  majored  in  Applied
Mathematics.  In 2000 he gained his Master's degree from Jilin  University where
he majored in Operations  Research &  Cybernetics;  In 2003, Mr. Zhou gained his
Doctor's degree from Jilin University,  majoring in Quantitative Economics. From
June 2001 - April 2003 he was working at Jilin  Huaruan  Technology  Co., Ltd as
secretary of directorate. Since April 2003 Mr. Zhou has been working at Shenzhen
BAK Company in the capacity of assistant to General Manager.

Shumin Li, Vice-President of Production
Mr., Li was born at 1954, Changchun City, Jilin Province.  From 1976 to 1979, he
studied at SUN YAT-SEN University obtaining his bachelor's degree by majoring in
Economics & Political  Science.  Mr. Li began working at Finance Bureau of Yushu
City, Jilin province in 1982 as a Comprehensive  Management Director until 2002.
In  2002  he  began   working  at  Shenzhen  BAK  company  in  the  position  of
Vice-Manager, in Charge of Manufacture.

<PAGE>

3.4 Facilities

The Company is in the process of developing  additional  world-class  production
facilities and  infrastructure in the BAK Industrial Park in Shenzhen.  BAK owns
acreage of 250,000m(2) and has an option on another  100,000m(2) (about 86 acres
total) on which to complete  its  facilities.  The total  construction  space is
projected to be 320,000m(2).

The  construction  project  is  divided  into  Phase 1 and  Phase 2.  Phase 1 of
construction will result in 185,000m(2) of new facilities,  among which there is
15,450 m(2) of new  manufacturing  facilities;  19,100m(2) for  warehousing  and
packaging;  2,950m(2) for a dining room;  and 15,800 m(2) for  dormitory  space.
Some of  these  facilities  have  already  been put  into  use.  The rest of the
buildings  in Phase 1 are still  under  construction,  having  erected  the core
structures and in the process of completing the FF&E work. These remaining Phase
1 buildings will include:  82,250m2 of manufacturing  facilities; a 16,780m2 R&D
center and administrative  building; a 2,950m2 dining room; a 28,460m2 dormitory
space;  and some  other  attached  facilities.  Phase 1  construction  should be
completed by March 2005.

Phase 2 of construction will result in 135,000m2 of new facilities. This project
is not yet under construction,  and is anticipated to begin in January 2007, and
to be  completed by the end of 2007.  It includes an  additional  66,480m(2)  of
manufacturing  facilities;  a 6,560m2  dining  room;  a  23,700m2  dormitory;  a
26,560m2  comprehensive usage building;  an 8,400m2 conference center; a 3,000m2
training center; and many other attached facilities.

Once  both  phases  of   construction   are  completed,   the  Company's   total
manufacturing  facilities  will exceed  183,630m(2),  with capacity to build 550
million pieces per year and house 12,000 employees.

3.5 R&D center

The company has a world-class R&D center performing proprietary research,  which
has resulted in more than thirty  patents  awarded or applied for.  Based on the
technology  of  ChangChun  Applied  Chemistry  Research  Institute  of the China
Scientific Institute,  Tstinghua Unversity,  JiLin University,  Electrochemistry
Department of XiaMen University and Shenzhen University, BAK has gathered a team
of  professionals  for its R&D center.  There are over 100 staff  members in the
center, led by three specialists  available to the Company by a government grant
to promote  research  and  development,  as well as three  professors.  Upon the
approval of the National  Ministry of Personnel in October 2002, a  Postdoctoral
Workstation  was  established,  the only such  research  position  in the entire
battery  industry in China,  and one of only two such positions in Guadong.  The
R&D center focuses  research on projects  relating to liquid Li-ion,  high power
Li-ion  batteries,   solid  polymer  Li-ion   batteries,   and  cylindrical  and
rectangular Li-ion batteries.

<PAGE>
<TABLE>
<CAPTION>

The R&D center's mission focuses on researching advanced technologies,  advanced
battery materials,  new cell development and training  first-class  specialists.
The Company's goal is to build an internationally known R&D facility.  Table 3-5
below outlines the organizational structure of the R&D center.

                 Table 3-5: R&D center organizational structure

                                                    R&D Director
                                                          |
                                                          |
                                           Vice-Director -|
                                                          |
-------------------------------------------------------------------------------------------------------------
<S>           <C>
|Physical &  | Battery | Technology |  Material |   High  | Polymer | Servicing | IPOffice | Administrative |
| Chemical   | Testing |    R&D     | Research  |  Power  | Battery |   Dept.   |          |      Dept.     |
| Analysis   |  Dept.  |   Dept.    |   Dept.   | Battery |   Dept. |           |          |                |
|  Dept.     |         |            |           |   Dept. |         |           |          |                |
-------------------------------------------------------------------------------------------------------------
</TABLE>

3.6 Company culture and management model

BAK has developed an open,  professional,  and innovative  culture.  The company
uses  various  tools to help build its  culture,  including a company  LAN,  BAK
BATTERY magazine and BAK newspaper. The company believes its people are its most
precious asset

A formal  performance  assessment  system is  applied  throughout  the  Company.
Objective management techniques focus on meeting goals, emphasizing judgment and
managing  processes.  The desired outcome is fairness and  encouraging  positive
outcomes.

<PAGE>

PART 4:  PRODUCTS

4.1  Product lines

There are three main forms of battery cells, aluminum, steel and cylinder, which
are sold in over 90 types.  The Company's  first key product in 2002 was a steel
case Li-ion battery.  Subsequently, BAK developed more production lines, and the
Company's product mix is now 69% steel cases battery cells, 30% aluminum, and 1%
cylinder form.

Before 2003, all of BAK's products were made using a manual  production line. In
2003, BAK developed the semi-automatic production lines that are utilized today.
BAK's  products'  primary  uses are  mobile  phones,  digital  cameras,  digital
camcorders,   MP3's,   laptops,   electric  bicycles,   and  general  industrial
applications.  Going  forward,  BAK will  also  concentrate  on  development  of
Li-polymer batteries, high power batteries and HEV batteries. The growing number
of product types is illustrated below:

                    Table 4-1: Number of BAK products by type
                      (actual amounts cannot be determined)

                   Steel Case         Aluminum Case               Cylindrical
                   ----------         -------------               -----------
      2002             20                  2.5                        NA
      2003             35                   15                        NA
      2004            52.5                  30                         5

4.2 Proprietary Technology

BAK's products meet or exceed  international  standards.  BAK's Li-ion batteries
have high capacity, low internal resistance, and a safety guarantee that meet or
exceed  industry  standards.  Certificates or approvals the Company has received
include:  certificate of Shenzhen Hi-tech enterprise (which lowers the Company's
income  tax rate from 33% to 15%,  allows for  certain  government  grants,  and
access to land for a nominal  price);  EU's CE attestation;  UL  authentication;
ISO9001: 2000 quality management system certification of the ZJQC; ISO4001: 1996
environmental management system certification of ZJQC; and certificates from the
major cell phone manufacturers of China, including China Saibao; Xiaxin; Datang;
Konka; Tianyu; and Tianshida.  With these manufacturers' approvals, BAK controls
60% of the Chinese  replacement market and 14% of the Chinese OEM market. BAK is
in the process of receiving OEM certification  from major  international  mobile
phone manufacturers, such as Motorola, [*****].

<PAGE>

BAK's  battery  has a higher  discharge  voltage so that it can provide a longer
talking time on a mobile phone. BAK's products are charged or discharged at 1.0C
(i.e., the discharge current is set to release all the battery energy in exactly
1  hour),  and the  discharge  time is more  than 48  minutes  above  3.6V  (the
remaining  energy is released below 3.6V),  much higher than the normal standard
(38-40 minutes);  with the same capacity,  BAK's battery can therefore provide a
longer talking time on a mobile phone.

Other key features of the Company's batteries include:

High rate  capability  means that BAK's  batteries are capable of discharging at
high  currents.  1.0c  (means  discharge  all the energy  for 1 hour)  discharge
capacity  can reach more than 98% that of 0.2C  (discharge  all the energy for 5
hours),  which far  surpasses the 85% Chinese  National  standard.  Thus,  BAK's
products can insure a much longer duration when making battery phone calls. This
has particular significance for cellular phones with color screens, which have a
high demand on the battery's continuous discharge voltage.

Good performance at lower  temperatures(pound)(0)BAK's  Li-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 0.2C rate;  and over 90% of the
battery  energy can be discharged  at 1.0C.  This feature  allows  improved cell
phone battery duration, particularly in northern areas.

4.3 Post-sale service

BAK has three strategic policies for sales and service.

1. BAK has built a sales and service  network to cover all the coastal cities in
China, and also has branches in Beijing,  Shanghai, Ningbo, Huizhou, Fuzhou, and
Guangzhou.
2. BAK's service capabilities include 24-hour customer response.
3. BAK has arranged for liability  coverage with AIU, a China  subsidiary of the
international insurance company AIG. AIU provides coverage for BAK's products in
the areas of personal  injury,  death and property  loss,  minimizing  potential
customer losses.

4.4 Suppliers

The  Company  has 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). The main components of Li-ion  batteries are the
cathode,  anode,  separator,  and  electrolyte.  Cathode  material 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 the quality is very good. The table below
describes the key sources of the Company's key  materials.  There are a few sole
suppliers for some materials.

<PAGE>

                  Table 4-2: Details of 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
------ ------------------- -----------------------------------------------------

                  Table 4-3: Details of 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 Qiangtian Industrial
                                                         Co. ,Ltd.
------ ---------------------------------- --------------------------------------
   9     Testing and sorting equipment         Guangzhou Qiangtian Industrial
                                                         Co.,Ltd.
------ ---------------------------------- --------------------------------------

PART 5:  SALES AND MARKETING

5.1 Marketing strategies

BAK has two key marketing strategies.

1.   Dominate  the  replacement  battery  market.  Excellent  quality is the key
     factor  for BAK to gain  market  share,  and  high  volume  production  has
     significantly  brought down BAK's costs. BAK currently controls over 60% of
     this market in China.

2.   Advance the OEM (Original Equipment  Manufacture)  market,  taking Japanese
     and Korean  market share  through a low price  strategy.  This will require
     gaining approvals from key international manufacturers, including Motorola,
     [*****], which are currently reviewing the Company's products.  Approval by
     Motorola is the first step to entering the  international  OEM market which
     is expected by June 2005.

5.2 BAK's  current  market.  As discussed  above,  the Company has built a sales
network based on coastal  cities in China.  BAK products have also been exported
to US, Canada, South Africa, Japan, Singapore,  Taiwan, and Hong Kong. From 2001
to 2003,  BAK's annual  sales have grown from $3 million to $64 million,  and by
the end of fiscal 2005 sales volume is projected to reach $110  million,  making
BAK a dominant global supplier.

5.3 Customers. BAK's 30 major clients account for 85% of sales, predominantly in
China. At present, the bulk of sales are into the replacement cell phone battery
market.

   Table 5-1: Top 10 customers as a % of trailing 9 month revenues (1/04-9/04)

Rank             Customer                                          % of Revenues
----------       -------------------------------------------       -------------
1                ShenzhenYa Litong Electronic Co., Ltd             13.62%
2                SCUD.iFujian.jElectronics Co., Ltd.               7.40%
3                Ming Ji Battery Co.,Ltd.                          7.00%
4                Shenzhen Hai Ertai Electronic Co., Ltd.           4.95%
5                Guangdong Wei Liwang Electronic Co., Ltd.         4.57%
6                Shenzhen Bi Litong Electronic Co., Ltd.           3.25%
7                Bi Ke Technology Co., Ltd.                        3.07%
8                Hai Lutong Electronic Co., Ltd.                   2.66%
9                Chao Litong Electronic Co., Ltd.                  2.79%
10               Zhong Yi Co., Ltd.                                2.50%
Total                                                              51.82%

<PAGE>

               Table 5-2: Domestic vs. International sales mix (%)
                      (actual amounts cannot be determined)

                          Domestic            International
                          --------            -------------
         2001               95%                    5%
         2002               85%                    15%
         2003               72%                    28%
         2004               70%                    30%

Over the past three years, the Company has developed a close strategic  alliance
with current key customers,  including Yalitong,  Konka, TCL and Desai. As noted
previously, BAK has obtained the approval from Saibao, Konka, Tianyu, Tianshida,
Datang,  and is  seeking  approval  from  the  top  international  mobile  phone
manufacturers such as Motorola, Siemens and Bird.

5.4 Potential market opportunities

1.   Quick entry into the wholesale China  telecommunications  markets. The five
     major  telecommunication  markets  in  China  are in  Guangzhou,  Shenzhen,
     Hangzhou, Chengdu, and Quanzhou.

2.   Establish strategic  partnerships with mobile phone manufacturers in China.
     There are nine  manufacturers  which  obtained  approvals from the National
     Plan Committee and Information Technology Department: Eastcom, ZTE, Xoceco,
     Hair,  Soutec,  TCL, Konka,  Chinakejian  and NingboBird.  BAK has begun to
     supply limited numbers of battery cells to these companies.  In the future,
     BAK will  concentrate on  establishing  strategic  partnerships  with these
     mobile manufacturers, and provide comprehensive service.

3.   Aggressively exploit the international market. Although BAK's products have
     been exported on a limited basis to the US,  Canada,  South Africa,  Japan,
     Singapore,  Taiwan and Hong Kong,  most of BAK's products are sold into the
     Chinese market. BAK is seeking OEM certification approval from Motorola and
     Siemens,  among other  international  companies.  Exploiting  international
     markets becomes one of the most important assignments for BAK.

PART 6:  STRATEGIC ANALYSIS

6.1 SWOT Analysis

The following SWOT matrix chart provides some insight into the Company's
competitive position.

                         Table 6-1: SWOT matrix analysis

Opportunity                                   Strengths
---------------------------------------       ----------------------------------
1.Rapid growth of the Li-ion battery          1.Technological advantage
industry                                      2.Cost advantage
2.Huge market demand in China                 3.Volume production advantage
3.Government industrial policy support        4.Strategic cooperative
                                              relationship between suppliers
                                              and customers

Threats                                       Weaknesses
---------------------------------------       ----------------------------------
1.Foreign battery company investments         1. Limited product line
directly or in joint ventures in China        2.Availability of capital
2.Product Substitution                        3.No penetration yet of the mobile
3.China government economic control           OEM market
slows market growth

6.1a Strengths analysis

Rapid industry growth.  The annual compound rate of increase of worldwide Li-ion
battery volume is projected  23.2% during the years  2003-2006,  decreasing to a
still healthy 9.85% compound annual growth rate in years 2007-10.

Huge market demand in China.  OEM sales of new mobile phones and  replacement of
existing  mobile phone  batteries are expected to reach to 576 million pieces in
China in 2005.  Along with mobile  phones,  China consumes the largest amount of
high power bicycle  batteries.  In addition,  the demand for laptop batteries in
China is in the early phases of  commercialization.  BAK's  technology leads the
industry in these segments.

Governmental industrial policy support. In its most recent Five Year Development
Plan, the 9th National  Economic and Social  Development  Plan  (2002-2006)  and
National  Development  Plan 2004-2010,  the Chinese  government has committed to
support products which are high  value-added;  containing high  technology;  and
complying with  governmental  industry  policy and following  critical  industry
trends. Those products include NiMH batteries, Li-ion batteries, fuel batteries,
high power batteries and solar  batteries,  as well as their relative  materials
and production  research,  R&D,  manufacture and sale. The government  primarily
gives  preferential  support in the  following  areas:  tax  breaks,  government
grants, bank credit, inexpensive land and similar kinds of support.

6.1b Strengths Analysis

Technological  advantage: The rechargeable Li-ion cell phone battery made by BAK
has  excellent  features,  such as: good  storage,  high voltage  platform,  low
internal  impedance  and better  safety.  Some of the features  surpass  similar
products  both at home  and  abroad  (see the  comparison  in  Table  2-4).  The
Company's  products have already received  approvals from 14  manufacturers  and
third party  certification  groups such as ISO & Underwriters  Laboratories.  In
addition,  the company's  laptop  batteries  have been approved by  Underwriters
Laboratories for volume production.. BAK's industry leading research in the area
of electric  bicycles has resulted in a battery that can support 8 hours' riding
time at a speed of 20 kilometers per hour.

Cost advantage:  Because of BAK's latest generation  equipment and efficient use
of labor,  management believes the Company can produce at a [*****] cost savings
relative to [*****].

The advantage of volume production: the current production capacity of BAK is 15
million  pieces per month;  and the monthly  output is 11.8 million  pieces.  At
present,  only BAK and BYD have such production capacity in China and BAK ranked
number seven in the world in Li-ion battery cell  manufacturing  capacity during
the first  quarter of 2004 and expects to reach number three upon  completion of
its new facility in fiscal 2005.

The  strategic  cooperative  partnership  between  BAK  and  its  customers  and
suppliers:  Unlike BYD, which is completely vertically  integrated,  BAK focuses
exclusively on manufacturing  Li-ion battery cells,  which is believed to be the
highest  value-added  segment of the supply chain. BAK leaves compound materials
production to strategic  partners and instead puts its energy into manufacturing
the battery  cell.  Management  believes this allows BAK to focus its capital on
the  manufacturing  process and therefore allow it more  flexibility in managing
production volumes.

<PAGE>

6.1c Weaknesses analysis

Limited  product  line:  The company  primarily  serves the mobile phone battery
market.  The  laptop  battery  has only  220,000  pieces of output  per month at
present.  If the Company  can't  successfully  close a financing and enlarge the
production  volume,  then it may lose the  opportunity  in this  segment  of the
Li-ion market.

Financial risk: The Company expanded aggressively, experiencing dramatic revenue
growth in just three years, which caused it to incur significant debt to finance
cash needs associated with this growth.  According to the latest financial data,
as of September 30, 2004,  the Company's  total  liabilities to equity ratio was
3.1:1.  The new facility is being financed with short-term  debt,  which will be
replaced with permanent  financing upon  completion of the plant.  The continued
availability of financing will be critical to the Company's continued growth.

No penetration  (yet) into the  international  OEM mobile phone battery  market:
products of the Company are sold primarily into the replacement market. Although
the Company awaiting approval from Motorola and others, and initial  indications
have been good,  approval is not  guaranteed and it is at least six months away.
However,  once approval is received,  based on BAK's cost  advantages and volume
production  advantages,  BAK believes it will become a dominant OEM manufacturer
in the mobile phone battery market.

6.1d Threats analysis

Foreign  battery  company  investments  directly or in joint  ventures in China:
Japanese  Li-ion  battery  companies can see the huge market in China and face a
need to reduce  costs.  Many foreign  battery  companies  are investing in joint
ventures or investing  directly in China.  At present,  Japanese  companies like
Sanyo, Sony and Panasonic are setting up Li-ion battery plants in Beijing,  Wuxi
and other locations.

        Table 6-2: Comparison of the Li-ion battery competitive strengths

           Item                    Japan       Korea       China
           --------------------    -----       -----       -----
           Cost                    5           8           10
           R&D                     10          8           7
           Capital                 8           8           5
           Governmental support    10          9           8
           Potential               8           10          10

           Note: 10 is highest, 1 is lowest

<PAGE>

Product substitution:  Worldwide, particularly Japan, companies are accelerating
research in new energy storage.  A particularly  hot area of research is in fuel
cells and it may impact the Li-ion battery market.

At the Portable  Power  Conference  and Expo in San Francisco in February  2004,
Yoshio  Nishi of Sony  stated  that if the  cost of fuel  cells  can be  reduced
further,  fuel cells are expected as a next  potential  portable power source in
the coming 4-5 years. However, he also pointed out that the fuel cell could only
be optimally deployed in connection with a Li-ion battery.  The company believes
the commercial  viability of fuel cells as a replacement for Li-ion batteries is
at least 10 years away.

China government  economic control slows market growth: The 3rd calendar quarter
of the year has traditionally been the best sales quarter, but the main domestic
cell phone  manufacturers  reduced output because of an economic slowdown caused
by the Chinese  government's  tightening of monetary  policy.  As a result,  BAK
couldn't  make full use of its capacity for the past six months and profits this
year been reduced as a result.  Although the company's revenue grew by 216% last
year,  the company  believes  its revenue  would have been  greater  without the
Government's  tightening  policy.  Prior  experience leads management to believe
that the Chinese government will change its policies in the near term.

6.2 Competitive analysis

                     Table 6-3: BAK and domestic competitors

<TABLE>
<CAPTION>
                                              Capacity        Technical
   Company            Main products         (pieces/mo.)        level          Cost             Market
--------------    ---------------------    --------------    -----------    -----------   ------------------
    <S>           <C>                      <C>                   <C>        <C>           <C>
      BAK             Steel Case &         11.8 million          High          Low        Replacement market
                   Aluminum Case cell

      BYD         Aluminum Case cell;       15 million           High       Quite low         OEM market
                  Power tool; Battery

    Lishen        Aluminum Case cell;        6 million           High          High           OEM market
                    Polymer battery

      TCL           Polymer battery          4 million           High       Quite high        OEM market
</TABLE>

6.3 Strategic Plan

Based on its  increase in  production  capacity  BAK will seek to  increase  the
breadth of its product  line,  improve the quality of its  products and increase
profits.

The Company will  complete the move into its new  industrial  park during fiscal
year  2005,  which  will  enhance  production  capacity  and  allow  for  volume
production advantages.  In the next 1-2 years, the Company plans to aggressively
pursue the international OEM mobile phone battery market and expand the sales of
laptop batteries.

The  precondition of entering into the original  equipment  mobile phone battery
market is obtaining the quality  authentication  from cell phone  manufacturers,
such as  Motorola.  High power  batteries  produced  by BAK for use in  portable
computers  have already  received UL approval,  which is the key permit  Chinese
companies  receive to enter into the world  market.  By June 2005,  the  Company
hopes to construct a production line for producing portable computer  type-18650
battery through financing.

Within 2-3 years,  the Company's goal is to enter into the much larger  electric
bicycle and power tools battery  markets.  Key  manufacturers of power tools are
Black  &  Decker,  TTI,  Bosch  and  Makita.  The  Company  has  already  made a
breakthrough in the R&D for electric bicycle  batteries,  and can fully meet the
requirements of commercialization.

Ultimately, the Company seeks to make Li-ion batteries as inexpensive as NiCd or
NiMH batteries.  In this area the Company has already made several  discoveries,
which will be incorporated into production over time.

With soaring oil prices and the pressure to go "Green", hybrid electric vehicles
("HEV") are in short supply in the USA. On September  23, 2004,  in an effort to
prompt more consumers to buy the fuel-efficient,  low-emission cars,  California
Governor Arnold Schwarzenegger signed bill 1493 to allow single occupant HEVs to
use  carpool  lanes.  The  Canadian  Government  charges  zero  sales tax on the
purchase of any HEV.

The reason for such  government  incentives is that HEVs are the most  practical
gas efficient vehicles running on the roads worldwide. The gas mileage can be as
high as 65 miles per gallon, compared to conventional gasoline engine cars at 20
to 28 miles per gallon. HEVs are equipped with a small gasoline engine,  usually
only 3 cylinders and an electric motor powered by  rechargeable  batteries.  The
reason for such high gas mileage is the  alternating  use of the gasoline engine
and the electric motor. At acceleration, both gasoline engine and electric motor
power the car to provide  enough power to be similar to  conventional  cars. The
batteries are recharged  during braking,  downhill slopes and normal  operation.
There is no need to charge the batteries  using  household  electricity  at all.
Therefore, drivers don't notice any performance difference from the conventional
gasoline  cars but great  savings on gas bill.  HEVs have  gained  great deal of
publicity in the US, Japan, Canada and many other countries and will soon become
a mainstream passenger car in the automobile market.

However,  current  rechargeable  batteries  used in HEVs such as the Prius  from
Toyota,  Insight from Honda and the 2005 Ford Escape HEV are all NiMH.  As shown
in Table  2-1,  Li-ion  batteries  have much  higher  energy  density  than NiMH
batteries.  If HEVs use Li-ion batteries instead of NiMH, the battery weight can
be easily  reduced from 400 pounds to about 200 pounds or less. One of the major
hurdles that prevent HEV makers from using  Lithium ion battery is the cost.  As
mentioned earlier in this proposal,  BAK has the most cost efficient lithium ion
battery products, with costs close to NiMH. A technology breakthrough in the HEV
industry is possible as BAK drives down its cost of producing Li-ion batteries.

BAK has already noted the potential and is developing  the  rechargeable  Li-ion
batteries suitable for HEV. [*****]. As soon as it becomes a public company, BAK
will  intensify its efforts in this area and make major  investments  to develop
HEV batteries.

                 Table 6-4: BAK manufacturing capacity increases
                           (unit: 1,000 pieces/month)
<TABLE>
<CAPTION>
                              Steel
                              case          Aluminum      Cylindrical      Power     Polymer
Fiscal Year      Item        battery      case battery      battery       battery    battery     Total
------------   --------    -----------    ------------    -----------    --------   ---------  --------
     <S>       <C>             <C>           <C>             <C>         <C>        <C>         <C>
      2005     Capacity           7700          6600             660         440          0      15,400
               Output             6600          4400             550         330          0      11,880

     [*****]   [*****]         [*****]       [*****]         [*****]     [*****]    [*****]     [*****]
               [*****]         [*****]       [*****]         [*****]     [*****]    [*****]     [*****]

     [*****]   [*****]         [*****]       [*****]         [*****]     [*****]    [*****]     [*****]
               [*****]         [*****]       [*****]         [*****]     [*****]    [*****]     [*****]
</TABLE>

6.4 Risks related to doing business in China

A Downturn In The Chinese Economy May Slow Down Our Growth And Profitability.

The growth of the Chinese economy has been uneven across geographic  regions and
economic  sectors.  There can be no assurance that growth of the Chinese economy
will be  steady  or that any  downturn  will not have a  negative  effect on our
business.   Our  profitability   will  decrease  if  expenditures  for  wireless
value-added  services  decrease due to a downturn in the Chinese  economy.  More
specifically, increased penetration of wireless value-added services in the less
economically  developed  central and western  provinces  of China will depend on
those  provinces  achieving  certain  income  levels so that  mobile  phones and
related services become affordable to a significant portion of the population.

The  Uncertain  Legal  Environment  In China Could  Limit The Legal  Protections
Available To Investors.

<PAGE>

The Chinese legal system is a civil law system based on written statutes. Unlike
common law  systems,  it is a system in which  decided  legal  cases have little
precedential  value.  In  the  late  1970s,  the  Chinese  government  began  to
promulgate a  comprehensive  system of laws and regulations  governing  economic
matters.  The overall effect of  legislation  enacted over the past 20 years has
significantly  enhanced the protections afforded to foreign invested enterprises
in China. However, these laws, regulations and legal requirements are relatively
recent  and are  evolving  rapidly,  and their  interpretation  and  enforcement
involve  uncertainties.  These  uncertainties  could limit the legal protections
available  to  foreign  investors,   such  as  the  right  of  foreign  invested
enterprises to hold licenses and permits such as requisite business licenses.

Any  Recurrence  Of Severe  Acute  Respiratory  Syndrome,  Or SARS,  Or  Another
Widespread  Public  Health  Problem,  Could  Adversely  Affect Our  Business And
Results Of Operations.

A renewed outbreak of SARS or another widespread public health problem in China,
where all of our revenue is derived, and in Shenzhen, where our operations are
headquartered, could have a negative effect on our operations. Our operations
may be impacted by a number of health-related factors, including the following:

o  quarantines  or  closures of some of our  offices or  factories,  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 business and results of operations.

Changes In China's Political And Economic Policies Could Harm Our Business.

The  economy  of China  has  historically  been a  planned  economy  subject  to
governmental plans and quotas and has, in certain aspects, been transitioning to
a more market-oriented economy. 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,  we cannot  predict  the  future
direction of these  economic  reforms or the effects these  measures may have on
our business,  financial  position or results of  operations.  In addition,  the
Chinese  economy  differs from the economies of most countries  belonging to the
Organization   for  Economic   Cooperation  and  Development   ("OECD").   These
differences include:

o economic structure;
o level of government involvement in the economy;
o level of development;

<PAGE>

o level of capital reinvestment;
o control of foreign exchange;
o methods of allocating resources; and
o balance of payments position.

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

Restrictions  On Currency  Exchange May Limit Our Ability To Receive And Use Our
Revenues Effectively.

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

The Value Of Our  Securities  Will Be  Affected  By The  Foreign  Exchange  Rate
Between U.S. Dollars And Renminbi.

The value of our common  stock will be  affected by the  foreign  exchange  rate
between U.S.  dollars and Renminbi.  For example,  to the extent that we need to
convert U.S.  dollars into  Renminbi  for our  operational  needs and should the
Renminbi appreciate against the U.S. dollar at that time, our financial position
and the price of our common stock may be adversely affected.  Conversely,  if we
decide to convert our  Renminbi  into U.S.  dollars for the purpose of declaring
dividends  on our  common  shares or for other  business  purposes  and the U.S.
dollar  appreciates  against the  Renminbi,  the U.S.  dollar  equivalent of our
earnings from our subsidiaries in China would be reduced.

PART 7:  PROPOSED EQUITY PLAN

7.1 The transaction

Before  December  31,  2004,  the  Company  plans to raise $17 million of common
stock,  simultaneously close a reverse merger, and begin trading on the Over the
Counter  Bulletin  Board  ("OTCBB").  As part of a proposed  $17 million  equity
financing,  BAK will escrow 10% of their post merger and financing  stock, to be

<PAGE>

used as compensation for investors if the Company fails to deliver the projected
profit.  The Company has  guaranteed $12 million of Net Income ("NI") for fiscal
2005 (year ending  September  30, 2005) and $27 million NI for fiscal 2006 (year
ending  September  30,  2006)  ("Guaranteed  NI").  BAK agrees to put 10% of its
entire post reverse  merger and financing  stock  position in the public company
("Penalty  Pool") into  escrow at the  Closing to satisfy  any future  shortfall
between  final  audited  numbers  ("Audited  NI") and the  Guaranteed  NI.  Five
business  days after  annual  fiscal year audits are  completed  for the periods
ending  September  30, 2005 ("Make Good Period 1") and September 30, 2006 ("Make
Good Period 2") the audited  numbers will be compared to the  Guaranteed  NI. In
the event that the Audited NI comes in less than the  Guaranteed NI in Make Good
Period 1, 50% of the Penalty Pool will be transferred  to the Investors.  In the
event  that the  Audited  NI comes in less than the  Guaranteed  NI in Make Good
Period 2, the  remainder  of the Penalty Pool (50%) will be  transferred  to the
Investors. If the Audited NI exceeds Guaranteed NI during each Make Good period,
BAK can  immediately  take  possession  of the  Penalty  Pool  portion  for that
respective Make Good period.

The  public  company,  within  30  days of the  closing  of the  reverse  merger
transaction,  will file a registration  statement for the purpose of registering
the shares acquired by the investors. Shortly thereafter, the Company will apply
for listing to the NASDAQ and it is  anticipated  that the Company  will list on
the NASDAQ by May 2005.  The Company  plans to conduct a  traditional  secondary
stock offering to raise at least $40 million in the second half of 2005.

7.2 Financing and post merger ownership

Upon  the  closing  of the  going  public  transaction  and the  trading  of the
Company's  stock on OTCBB,  the current  stockholders  of the Company  will have
control  of 76.2% of the  issued  and  outstanding  common  stock of the  public
company,  leaving 2.8% of the issued and outstanding  common stock of the public
company  to be held by  persons  other  than  the  current  stockholders  of the
company,  including the original  shareholder  of the shell  company.  The other
21.0% of issued and outstanding  common stock of the Public Company will be held
by the new investors.

7.3 Use of funds

Net proceeds from the financing will be used as follows:

1.       Invest $4.25 million to expand  production  capacity.  The Company will
         spend $4.25  million to build a  production  line.  This line will have
         capacity of 100 thousand pieces of laptop  batteries per day. The funds
         will primarily used to construct workshops, buy equipment and build the
         new product line. Assuming a 12/31/04 closing date, the production line
         could be put into place by July or August  2005.  The capital will used
         to buy equipment as follows:

<PAGE>

                                                      (in mm's)        (in mm's)
Item                                     Units        Cost/Unit          Total
                                         -----        ---------          -----
Mixer                                      2            $0.15            $0.30
Coating Machine                            1            $1.00            $1.00
Press Machine                              1            $1.00            $1.00
Cutting Machine                            1            $0.30            $0.30
Rolling Machine                            2            $0.32            $0.65
Assembling automated production line                    $1.00            $1.00
                                                                         -----
Total                                                                    $4.25

2.       Invest $1.7 million for polymer  Li-ion  battery and high power battery
         research  and  development.  The  Company  plans to  spend  part of the
         collected capital into the research of new products.

3.       $10.05 million will used to support  working  capital.  The increase in
         production will impact company's working capital requirements.

7.4 Timetable for capital operation plan and refinancing plan

December 31, 2004:         Complete a) $17 million  financing b) reverse  merger
                           to  trade  on  OTCBB  and  c)  Company  will  file  a
                           registration   statement,    registering   investors'
                           shares;

May 2005:                  List on NASDAQ;

September 2005:            Conduct a  traditional  secondary  stock  offering to
                           raise $40+million.

PART 8:  HISTORICAL FINANCIAL INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This  discussion  contains  certain   "forward-looking   statements"  which  are
inherently  subject to risks and  uncertainties  that may cause actual events to
differ  materially  from those  discussed  herein.  Factors which may cause such
differences in events include,  among other things,  our ability to maintain our
relationships  with our significant  customers;  increased  global  competition;
increases in the prices of, or limitations on the  availability  of, our primary
raw materials;  or a downturn in the cellular industry,  upon which we currently
rely for the bulk of our sales revenue,  and which is cyclical and dependent on,
among other things,  consumer spending,  international  economic  conditions and
regulations and policies  regarding  international  trade. Many of these factors
are beyond our ability to control or predict. Readers are cautioned not to place
undue reliance on these forward-looking  statements.  We undertake no obligation
to publish revised forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.

<PAGE>

UNAUDITED STATEMENTS

The financial statements included in this Part 8 are unaudited.  The Company has
engaged an auditor  and is in the final  stages of  producing  complete  audited
statements.  These audited  statements will be available upon completion,  which
will be prior to closing any financing.

EXCHANGE RATE

For the purposes of these discussions, an exchange rate for the Chinese Renminbi
of 8.265 per U.S. dollar was used for all three years.

RESULTS OF OPERATIONS

The past year was resulted in continued strong growth of revenues and profits at
the  Company.  Despite a decrease in price per unit for the third year in a row,
Revenues  more than  tripled  for our fiscal  year ending  September  2004.  Our
customers continued to demand price concessions,  while  simultaneously  raising
the bar with respect to quality and service  requirements.  In response to these
conditions,  we relied on the time-tested  approach of cost containment and cost
reductions. As a result, our net profits still grew over 91%.

                                      2002       2003       2004
                                    --------   --------   --------
               Revenues
               Steel case cell      $  3,050   $ 19,906   $ 50,750
               Aluminum case cell       --          275     13,084
               Cylindrical cell         --           86        254
                                    $  3,050   $ 20,267   $ 64,088

Revenues  overall  grew  216.2% to $64.09  million in fiscal  year 2004,  driven
primarily by growth in the aluminum case segment,  and to a lesser  extent,  our
traditional steel case segment.  Our traditional steel case business grew 154.9%
to $50.75 million,  while 2004 aluminum case revenue grew to $13.08 million,  47
times  2003  revenue.  In its second  year of sales,  the  cylindrical  business
tripled in size to $254 thousand.

[*****]

Following industry trends,  unit prices declined across all segments,  including
12.4% for steel case and 21.9% for aluminum  case.  The Company has been able to
more  efficiently  source its raw  materials  and also is  improving  production
efficiencies,  especially as it now  consolidates its plants into BAK industrial
park.

<PAGE>

[*****]

Gross income grew from $5.69 million to $14.46 million, a 153.9% increase. Gross
income grew slower than revenues  because unit prices  continued to decrease (as
discussed  above)  while unit costs fell for steel case  cells,  but rose in the
aluminum case and cylindrical cell segments. Prior to 2004, the Company sold its
products  primarily into the  replacement  battery market (as opposed to the OEM
market).   The  products  in  the  replacement  market  face  lower  prices  and
consequently,  lower gross  profit  margins.  This should  change as the company
moves into the OEM segment (see the notes to projections).

[*****]

While  steel case cell unit costs  were down 5.5% in 2004,  aluminum  case cells
were up 10.5% and  cylindrical  were up 39.2%.  The primary  reason why the unit
cost of aluminum  case cells  increased in 2004 compared to 2003 was an increase
in the price of cobalt, a critical ingredient. A second, less significant impact
on prices was an  increase  in the price of  aluminum.  The  Company  added more
process  controls in 2004 and longer term expects to reduce costs by  increasing
yields and reducing materials usage.

Unit costs of  cylindrical  cells were up in 2004 compared to 2003, but the tiny
volume of  cylindrical  cells produced in 2003 does not make any changes in 2004
very meaningful.

Selling expense grew to $1.87 million in 2004, or 2.9% of revenues, up from $.44
million  or 2.2% of  revenues  in 2003 and  0.5% of  revenues  in 2002.  Selling
expense consists of advertising,  marketing,  exposition costs,  sales personnel
salaries,  certain employee costs and certain transportation costs. The increase
in these  expenses as a percentage  of revenues in the past two years is because
the Company began a formal marketing program.  Prior to 2003, the Company did no
marketing or advertising.

<PAGE>

General and  administrative  expense grew to $3.96  million in 2004,  or 6.2% of
revenues,  compared to $1.36 million or 6.7% of revenues in 2003,  and down from
7.0% of  revenues  in 2002.  General  and  administrative  expense  consists  of
research and development costs, salaries,  benefits and office expenses. Certain
redundant  expenses are expected go away after the Company  consolidates its six
separate factories into the new BAK Industrial Park.

Interest  expense grew to $1.01  million in 2004,  or 1.6% of revenues,  up from
$.12 million or 0.6% of revenues in 2003 and 0.0% of revenues in 2002.  Interest
expense consists  primarily of interest expense,  and, to a lesser extent,  bank
service  charges,  exchange gains or losses and credit  enhancement  fees on the
Company's debt.

As a result,  operating  profit grew from $3.76 million in 2003 to $7.62 million
in 2004, despite the operating margin decreasing from 18.6% to 11.9%.

Income  taxes were $.39  million  in 2004,  for an  effective  tax rate of 5.1%,
compared to $0 in 2003 and 2002.  Because the Company is located in the Shenzhen
Special Enterprise Zone, it receives  favorable tax treatment.  The Company paid
no  income  tax  during  the first  two  years of  operation,  and then half the
standard  tax,  or 7.5%,  during  the  next  three  years.  The  reason  for the
difference  between the 7.5% tax rate and the 5.1%  reported in 2004 is that the
income tax is applied on a calendar year basis,  and the company's data reported
here is on a September 30 fiscal year basis.

2004 net income was $7.23 million,  up 92% from $3.76 million in 2003, which was
up from $.72 million in 2002.

DIVIDENDS

In determining to pay dividends, the Board considers current profitability,  the
outlook for longer-term profitability, known and potential cash requirements and
the overall  financial  condition of the Company.  To date,  the Company has not
paid any dividends.

PROPERTY, PLANT AND EQUIPMENT

The Company's historical capital expenditures are listed in the table below:

                                   2002       2003       2004      Total
                                 --------   --------   --------   --------
(in $000)
Fixed Asset Expenditures
         Plant                       --         --      4,586.7    4,586.7
         Equipment                  739.6    3,662.5   10,126.3   14,528.5
         Office facility             66.5       23.5      214.1      304.1
         Vehicles                    67.9      274.1      143.4      485.3
Total Fixed Asset Expenditures      874.0    3,960.1   15,070.6   19,904.6
Construction Expenditures            --        556.2   17,056.1   17,612.4

Depreciation  expense  consisted of $.265 million in 2002, $.379 million in 2003
and $1.711  million in 2004 and is  included in cost of goods sold on the income
statement.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's  holdings in cash and cash equivalents  amounted to $11.52 million
at September  30,  2004,  an increase of $10.03  million  compared to the end of
2003.  Accounts  receivable balances increased $13.33 million to $20.29 million,
reflecting  the strong  increase  in  revenues.  Inventory  levels at the end of
fiscal  2004 were $30.30  million,  an  increase  of $22.24  million,  which was
somewhat higher than the revenue growth rate.  There is some  seasonality to the
business,  which the Company  believes is the reason for the inventory growth in
2004. May through August is the slower period for Li-ion battery  industry sales
in China, while September through March are the peak selling months.  During the
slower May through  August  period in 2004 the Company  built its  inventory  in
anticipation of the peak selling period.

Short Term  Loans.  The  Company  has  incurred  the debt  primarily  to support
construction  of  its  new  infrastructure  and  manufacturing  capacity  at BAK
Industrial Park. The table below outlines these borrowings.  Management believes
that the  maturities  of these  notes can be  extended,  and will be rolled into
longer term facilities upon completion of construction.

----------------------------- ------------- ------------------- ----------------
                                 Amount
Institution                       ($mm)       Interest Rate       Maturity Date
----------------------------- ------------- ------------------- ----------------
China Agriculture Bank        $     2.42         4.59%                 4/10/2005
----------------------------- ------------- ------------------- ----------------
China Agriculture Bank        $     2.18         4.59%                  4/8/2005
----------------------------- ------------- ------------------- ----------------
China Agriculture Bank        $     1.82         4.54%                 12/7/2004
----------------------------- ------------- ------------------- ----------------
China Agriculture Bank        $     0.60         4.54%                11/28/2004
----------------------------- ------------- ------------------- ----------------
China Agriculture Bank        $     1.21         4.54%                 12/2/2004
----------------------------- ------------- ------------------- ----------------
China Agriculture Bank        $     1.34         4.59%                 3/29/2005
----------------------------- ------------- ------------------- ----------------
China Agriculture Bank        $     2.54         4.59%                 3/30/2005
----------------------------- ------------- ------------------- ----------------
Shenzhen Development Bank     $    12.10         5.84%                  4/1/2005
----------------------------- ------------- ------------------- ----------------
Xingye Bank                   $     2.42         5.31%                 3/11/2005
----------------------------- ------------- ------------------- ----------------
Mingsheng Bank                $     2.54         5.84%                 1/14/2005
----------------------------- ------------- ------------------- ----------------
Total                         $    29.16
----------------------------- ------------- ------------------- ----------------

Notes  Payable.  These are numerous  smaller notes  totaling  $20.80  million at
9/30/04 and are from China Agriculture Bank and Shenzhen Development Bank.

<PAGE>

Income Statement ($)

------------------------------------------- ------------ ------------ ----------
                          Item                FY 2004      FY 2003      FY 2002
------------------------------------------- ------------ ------------ ----------
Revenues                                     64,088,286   20,266,590   3,050,158
------------------------------------------- ------------ ------------ ----------
   less: cost of goods sold                  49,630,238   14,571,849   2,513,633
------------------------------------------- ------------ ------------ ----------
Gross Income                                 14,458,048    5,694,741     536,525
------------------------------------------- ------------ ------------ ----------
   plus: other income                             -            -         411,570
------------------------------------------- ------------ ------------ ----------
   less: selling expense                      1,871,987      442,753      15,984
------------------------------------------- ------------ ------------ ----------
         general and administrative expense   3,957,232    1,362,443     214,097
------------------------------------------- ------------ ------------ ----------
         interest expense                     1,007,516      122,976        -637
------------------------------------------- ------------ ------------ ----------
Operating profit                              7,621,313    3,766,569     718,651
------------------------------------------- ------------ ------------ ----------
   plus: investment income                        -            -           -
------------------------------------------- ------------ ------------ ----------
         other income                             -            -           1,281
------------------------------------------- ------------ ------------ ----------
   less: other expenses                           2,919        1,318         220
------------------------------------------- ------------ ------------ ----------
Pretax Income                                 7,618,394    3,765,252     719,712
------------------------------------------- ------------ ------------ ----------
   less: income tax                             391,965        -           -
------------------------------------------- ------------ ------------ ----------
Net Income                                    7,226,429    3,765,252     719,712
------------------------------------------- ------------ ------------ ----------

<PAGE>

Income Statement (%)

------------------------------------------- ----------- ----------- ------------
                          Item                FY 2004     FY 2003     FY 2002
------------------------------------------- ----------- ----------- ------------
Revenues                                       100.0%      100.0%      100.0%
------------------------------------------- ----------- ----------- ------------
  less:  cost of goods sold                    77.4%       71.9%       82.4%
------------------------------------------- ----------- ----------- ------------
Gross Income                                   22.6%       28.1%       17.6%
------------------------------------------- ----------- ----------- ------------
  plus: other income                                                   13.5%
------------------------------------------- ----------- ----------- ------------
  less: selling expense                         2.9%        2.2%        0.5%
------------------------------------------- ----------- ----------- ------------
        general and administrative expense      6.2%        6.7%        7.0%
------------------------------------------- ----------- ----------- ------------
        interest expense                        1.6%        0.6%        0.0%
------------------------------------------- ----------- ----------- ------------
Operating profit                               11.9%       18.6%       23.6%
------------------------------------------- ----------- ----------- ------------
     plus: investment income
------------------------------------------- ----------- ----------- ------------
           other income                                                 0.0%
------------------------------------------- ----------- ----------- ------------
     less: other expenses                       0.0%        0.0%        0.0%
------------------------------------------- ----------- ----------- ------------
Pretax Income                                  11.9%       18.6%       23.6%
------------------------------------------- ----------- ----------- ------------
     less: income tax                           0.6%
------------------------------------------- ----------- ----------- ------------
Net Income                                     11.3%       18.6%       23.6%
------------------------------------------- ----------- ----------- ------------

<PAGE>

Balance Sheet

-------------------------------------- ---------- ----------- ------------
         Assets                        9/30/2002  9/30/2003    9/30/2004
-------------------------------------- ---------- ----------- ------------
Current Assets:
-------------------------------------- ---------- ----------- ------------
  Cash on hand & in bank                  93,148   1,493,800   11,527,192
-------------------------------------- ---------- ----------- ------------
  Short term investment
-------------------------------------- ---------- ----------- ------------
  Notes receivable                                                 18,149
-------------------------------------- ---------- ----------- ------------
  Interest receivable
-------------------------------------- ---------- ----------- ------------
  Accounts receivable                  1,346,747   6,960,192   20,291,847
-------------------------------------- ---------- ----------- ------------
  Other receivable                       405,166
-------------------------------------- ---------- ----------- ------------
  Prepaid Expenses                       211,359     725,906    1,332,593
-------------------------------------- ---------- ----------- ------------
  Inventory                            1,087,288   8,057,998   30,295,414
-------------------------------------- ---------- ----------- ------------
       Total current assets            3,143,708  17,237,896   63,465,194
-------------------------------------- ---------- ----------- ------------

-------------------------------------- ---------- ----------- ------------
Fixed assets:
-------------------------------------- ---------- ----------- ------------
  Original cost of the fixed assets      874,017   4,834,088   19,904,680
-------------------------------------- ---------- ----------- ------------
    minus: Accumulated depreciation      265,129     644,558    2,374,245

-------------------------------------- ---------- ----------- ------------
Net Fixed Assets                         608,888   4,189,530   17,530,436
-------------------------------------- ---------- ----------- ------------

-------------------------------------- ---------- ----------- ------------
Construction in process                     -        556,207   17,612,372
-------------------------------------- ---------- ----------- ------------
Disposal of fixed assets

-------------------------------------- ---------- ----------- ------------
       Total fixed assets                608,888   4,745,737   35,142,808
-------------------------------------- ---------- ----------- ------------
Intangible and other assets:
-------------------------------------- ---------- ----------- ------------
  Intangible assets                         -         16,650    3,050,545
-------------------------------------- ---------- ----------- ------------
  Deposits                                  -        141,923
-------------------------------------- ---------- ----------- ------------
  Other long term assets                  26,104
-------------------------------------- ---------- ----------- ------------
  Accounts Receivable--Related Party                  866,693    1,509,712
-------------------------------------- ---------- ----------- ------------
Total intangible and other assets         26,104   1,025,266    4,560,257

-------------------------------------- ---------- ----------- ------------
       Total assets                    3,778,700  23,008,899  103,168,259

-------------------------------------- ---------- ----------- ------------

<PAGE>

-------------------------------------- ---------- ----------- ------------
       Liabilities and
     shareholders' equity               9/30/2002  9/30/2003    9/30/2004
-------------------------------------- ---------- ----------- ------------
Current Liabilities
-------------------------------------- ---------- ----------- ------------
  Short term loan                        362,976   3,484,574   29,159,105
-------------------------------------- ---------- ----------- ------------
  Notes payable                                    6,107,418   20,802,970
-------------------------------------- ---------- ----------- ------------
  Accounts payable                       418,360   5,172,150   23,604,590
-------------------------------------- ---------- ----------- ------------
  Salary payable
-------------------------------------- ---------- ----------- ------------
  Welfare payable
-------------------------------------- ---------- ----------- ------------
  Accrued expenses                     1,067,731   1,785,362    5,252,400
-------------------------------------- ---------- ----------- ------------
  Customer Deposits                                  656,350      369,931
-------------------------------------- ---------- ----------- ------------
  Other fee
-------------------------------------- ---------- ----------- ------------
  Other current liabilities
-------------------------------------- ---------- ----------- ------------
     Total current liabilities         1,849,067  17,205,854   79,188,997

-------------------------------------- ---------- ----------- ------------
Long term liabilities:
-------------------------------------- ---------- ----------- ------------
  Long term accounts payable
-------------------------------------- ---------- ----------- ------------
  Notes payable, due after 1 year                    120,992      181,488

-------------------------------------- ---------- ----------- ------------
  Other long term liability
-------------------------------------- ---------- ----------- ------------
      Total long term liability                      120,992      181,488

-------------------------------------- ---------- ----------- ------------
Deferred tax:
-------------------------------------- ---------- ----------- ------------
  Debit balance of deferred
  tax
-------------------------------------- ---------- ----------- ------------
Total liabilities                      1,849,067  17,326,846   79,370,485
-------------------------------------- ---------- ----------- ------------

-------------------------------------- ---------- ----------- ------------
Shareholders' equity:
-------------------------------------- ---------- ----------- ------------
  Capital stock                        1,209,921   1,209,921   12,099,214
-------------------------------------- ---------- ----------- ------------
  Paid in capital
-------------------------------------- ---------- ----------- ------------
   Retained earnings                     719,712   4,472,132   11,698,560
-------------------------------------- ---------- ----------- ------------
     Total shareholders' equity        1,929,633   5,682,053   23,797,774

-------------------------------------- ---------- ----------- ------------
Liabilities and                        3,778,700  23,008,899  103,168,259
shareholders' equity
-------------------------------------- ---------- ----------- ------------

<PAGE>

PART 9:  PROJECTED FINANCIAL INFORMATION

DISCLAIMER

This document contains statements about future events and expectations which are
characterized  as  forward-looking  statements.  Forward-looking  statements are
based upon management's  beliefs,  assumptions and expectations of the Business'
future  economic  performance,  taking into  account the  information  currently
available to them.  These  statements  are not  statements of  historical  fact.
Forward-looking statements involve risks and uncertainties that may cause actual
results,  performance or financial condition to be materially different from the
expectations of future results, performance or financial condition we express or
imply in any forward-looking statements.  Factors that could contribute to these
differences  include  those  discussed in other  sections of this  document (See
"Forward Looking Statements" in Part 8).

The words believe, may, will, should,  anticipate,  estimate,  expect,  intends,
objective  or similar  words or the  negatives  of these  words are  intended to
identify forward-looking  statements.  Any forward-looking statements are hereby
qualified entirely by these cautionary factors.

EXCHANGE RATE

For the purposes of these discussions, an exchange rate for the Chinese Renminbi
of 8.265 per U.S. dollar was used for all years.

KEY ASSUMPTIONS

The  Company  assumes  that  growth  over the next  several  years  will be from
[*****],  supplemented  by [*****].  Revenues for the older steel case cells are
projected  [*****] than historical  rates in 2005, 2006 and 2007;  [*****],  the
other newer segments are projected to [*****] during the same period.

<TABLE>
<CAPTION>
Revenue Growth                       2002           2003           2004            2005           2006            2007
-----------------------         --------------- -------------- -------------- --------------- -------------- ---------------
<S>                                   <C>          <C>            <C>            <C>             <C>            <C>
Steel case cell                       NA           552.7%         154.9%           3.4%          [*****]        [*****]
Aluminum case cell                    NA             NA           4657.8%         215.8%         [*****]        [*****]
Cylindrical cell                      NA             NA           195.3%         4493.7%         [*****]        [*****]
Power battery                         NA             NA             NA              NA           [*****]        [*****]
Polymer cell                          NA             NA             NA              NA           [*****]        [*****]
                                --------------- -------------- -------------- --------------- -------------- ---------------
                                      NA           564.5%         216.2%          71.8%          [*****]        [*****]
</TABLE>

As a result,  overall  revenues  are  projected to reach $110 million in 2005, a
71.8% increase over 2004.

<TABLE>
<CAPTION>
Revenues (in $000)                   2002           2003           2004            2005           2006            2007
-----------------------         --------------- -------------- -------------- --------------- -------------- ---------------
<S>                                 <C>            <C>            <C>            <C>             <C>            <C>
Steel case cell                     $3,050         $19,906        $50,750        $52,480         [*****]        [*****]
Aluminum case cell                    -              275          13,084          41,321         [*****]        [*****]
Cylindrical cell                      -              86             254           11,668         [*****]        [*****]
Power battery                         -               -              -            4,634          [*****]        [*****]
Polymer cell                          -               -              -              -            [*****]        [*****]
                                --------------- -------------- -------------- --------------- -------------- ---------------
                                    $3,050         $20,267        $64,088        $110,103        [*****]        [*****]
</TABLE>

<PAGE>

Unit prices on aluminum  case and  cylindrical  cells are expected to rebound in
2005 after several years of decline,  before  decreasing again in 2006 and 2007.
Prior to 2005,  the Company sold its aluminum  case product  primarily  into the
replacement market, a lower price, lower gross margin business. However, because
of the higher quality and associated costs of the OEM market,  these unit prices
are  projected  to increase  in 2005.  Doctor  Mao,  the new CTO,  has had prior
success  in  gaining  certification  from  Motorola  for OEM sales  while at his
previous employer,  tianjin lishen. He is now in charge of the certification for
BAK with Motorola, and it is estimated that the Company will begin to supply the
OEM market  during  2005.  After  2005,  the  Company  believes  it will need to
continue to reduce prices to remain competitive.

[*****]

[*****]

Mirroring  price increases  related to the move into the OEM market,  unit costs
are projected to increase in 2005 before  falling in 2006 and 2007.  After 2005,
the Company  believes it will be able to reduce unit costs through  efficiencies
gained  with  higher  volume   manufacturing  and  replacement  of  higher  cost
ingredients (such as cobalt) in its batteries.

[*****]

[*****]

Because the  percentage  increase in projected  unit costs for aluminum case and
steel case  batteries  [*****]  projected  unit price  increases in 2005,  gross
margins in the Company are projected to [*****].  The introduction of the newer,
[*****] results in a blended gross margin that [*****].

[*****]

Selling and general and administrative  expenses are projected to decline slowly
as a percent of revenues,  based on management's  prior experience.  The Company
will benefit from the completion of BAK Industrial  Park,  consolidation  of its
factories and the associated efficiencies gained.

Interest expense projections are based primarily on the Company's projected debt
levels  associated  with the  completion of the Company's new  facilities.  Upon
completion,  current  short term debt is projected  to be converted  into longer
term borrowings.  The Company anticipates  renewable 5 year loans from the China
Agriculture  Bank at rates which are priced at a spread  over the China  Central
Bank interest rate.

Tax rate.  Because the  company is located in the  Shenzhen  Special  Enterprise
Zone, the company receives  favorable tax treatment.  The Company paid no income
tax during the first two years of operation,  and then half the standard tax, or
7.5%,  through 2006. The reason for the  difference  between the 7.5% or 15% tax
rates  projected and those  reported in 2004 through 2007 is that the income tax
is applied on a calendar year basis,  and the Company's data reported here is on
a September 30 fiscal year basis.

Dividends.  BAK has not paid any  dividends  in the past and for the purposes of
these projections does not anticipate paying any dividends.

<PAGE>

Historical and Projected Income Statement ($)

<TABLE>
<CAPTION>
Shenzhen BAK Battery Co., Ltd.                                                                                US$ (000)

                             Actual          Actual           Actual         Projected        Projected        Projected
                               FY              FY               FY               FY               FY              FY
          Item                2002            2003             2004             2005             2006            2007
-------------------------    ---------    ------------    -----------    -------------    --------------    -----------
<S>                          <C>            <C>              <C>             <C>               <C>             <C>
Revenues                     3,050.2        20,266.6         64,088.3        110,103.3         [*****]          [*****]

    less: cost of goods      2,513.6        14,571.8         49,630.2         87,336.0         [*****]          [*****]
    sold

Gross Income                  536.5          5,694.7         14,458.0         22,767.3         [*****]          [*****]

    plus: other income        411.6                                              -                -                -

    less: selling expense     16.0            442.8           1,872.0         2,747.0          [*****]          [*****]

        general and
        administrative        214.1          1,362.4          3,957.2         5,303.0          [*****]          [*****]
        expense

        interest expense      -0.6            123.0           1,007.5         1,624.0          [*****]          [*****]

Operating Profit              718.7          3,766.6          7,621.3         13,093.3         [*****]          [*****]

    plus: investment
    income

        other income           1.3

    less: other expenses       0.2             1.3              2.9

Pretax Income                 719.7          3,765.3          7,618.4         13,093.3         [*****]          [*****]

    less: income tax                                            392.0            982.0         [*****]          [*****]

Net Income                    719.7          3,765.3          7,226.4         12,111.3         [*****]          [*****]
</TABLE>

NOTE:  Differences due to rounding

<PAGE>

Historical and Projected Income Statement (%)

Shenzhen BAK Battery Co., Ltd.

<TABLE>
<CAPTION>
                               Actual          Actual         Actual         Projected        Projected      Projected
                                 FY              FY             FY               FY              FY             FY
          Item                  2002            2003           2004             2005            2006           2007
-------------------------    ---------    ------------    -----------    -------------    --------------    -----------
<S>                           <C>             <C>             <C>              <C>             <C>            <C>
Revenues                      100.0%          100.0%          100.0%           100.0%          [*****]        [*****]

    less: cost of goods        82.4%           71.9%           77.4%            79.3%          [*****]        [*****]
    sold

Gross Income                   17.6%           28.1%           22.6%            20.7%          [*****]        [*****]

    plus: other income         13.5%

    less: selling expense       0.5%            2.2%            2.9%             2.5%          [*****]        [*****]

        general and
        administrative          7.0%            6.7%            6.2%             4.8%          [*****]        [*****]
        expense

        interest expense        0.0%            0.6%            1.6%             1.5%          [*****]        [*****]

Operating Profit               23.6%           18.6%           11.9%            11.9%          [*****]        [*****]

    plus: investment
    income

        other income            0.0%

    less: other expenses        0.0%            0.0%           0.0%

Pretax Income                  23.6%           18.6%           11.9%            11.9%          [*****]        [*****]

    less: income tax                                            0.6%             0.9%          [*****]        [*****]

Net Income                     23.6%           18.6%           11.3%            11.0%          [*****]        [*****]

</TABLE>

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00099-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00099-of-00352.parquet"}]]