Recent Achievements and Highlights
    -- Achieved near-record revenue in a quarter that included the long
       holiday of the Chinese Lunar New Year, as aluminum case cells and
       battery packs sales to Chinese customers for our OEM products continued
       to increase;
    -- Revenue from cylindrical cells, used in laptop computers, more than
       doubled from last quarter's levels and now accounts for 13% of our
       total revenues;
    -- Continued to gain major customers for our cylindrical cell products,
       including one of the world largest notebook computer battery pack
       manufacturer Simplo Technology Co., Ltd (Taiwan: 6121);
    -- Entered into settlements and mutual releases of all claims with
       certain investors relating to the private placement completed on
       January 20, 2005, putting a potentially distracting matter behind us.

Second Quarter FY08 Financial Results

Net revenues for the second quarter of FY08 were $51.3 million, down 2.8% from $52.8 million last quarter, but up 73.8% from $29.5 million in the same quarter of fiscal year 2007 ('FY07').

Revenues from aluminum-case cells were $30.3 million, up 0.7% from $30.1 million last quarter and up 155.3% from $11.9 million in the second quarter of FY07. Revenues from steel case cells were $5.9 million, down 39.8% from $9.8 million last quarter, and down 22.6% from $7.6 million in the second quarter of FY07.

Revenues from cylindrical cells, used in notebook computers, were $6.7 million, up 161.2% from last quarter and up 1,467.0% from the second quarter of FY07.

Revenues from lithium polymer cells, used in personal electronic devices such as PDAs, MP3 players and Bluetooth devices, were $1.9 million in the second quarter of FY08, down 64.9% from last quarter, but up 301.4% from the second quarter of FY07.

Revenues from battery packs were $6.6 million in the second quarter of FY08, up 31.4% from $5.0 million last quarter and up 404.9% from $1.3 million in the second quarter of FY07.

Gross profit for the second quarter of FY08 was $3.9 million, down 44.9% from $7.1 million last quarter and down 36.3% from $6.1 million in the second quarter of FY07. Gross margin was 7.6%, compared to 13.5% last quarter and 20.8% in the second quarter of FY07. The reduction in gross profit was mostly due to a significant increase in the purchase cost of raw materials, especially lithium cobalt dioxide, the main raw material in China BAK's products, and higher overhead related to the expansion of China BAK's manufacturing capabilities in FY07 and FY08.

Operating expenses totaled $7.6 million or 14.8% of revenues in the second quarter of FY08, as compared to $6.9 million or 13.1% of revenues last quarter and $4.1 million or 14.0% of revenues in the same quarter of last year. Research and development expenses were $1.4 million or 2.7% of revenues, as compared to $1.3 million or 2.5% of revenues last quarter and $0.9 million or 3.2% of revenues in the same quarter of last year. Sales and marketing expenses were $1.4 million or 2.7% of revenues, as compared to $1.3 million, or 2.6% of revenues last quarter and $1.1 million or 3.6% of revenues in the same quarter of last year. General and administrative expenses were $4.8 million or 9.4% of revenues, as compared to $4.2 million or 8.0% of revenues last quarter and $2.2 million or 7.3% of revenues in the same quarter of last year.

Operating loss for the second quarter of FY08 was $3.7 million, as compared to operating income of $0.2 million last quarter and $2.0 million in the same quarter of last year.

Net loss was $6.2 million in the second quarter of FY08, as compared to net loss of $0.9 million last quarter and net income of $0.4 million in the same quarter of last year. Diluted earnings per share were negative $0.12 compared with negative $0.02 per diluted share last quarter and $0.01 per diluted share in the same quarter of last year.

Financial Condition

At March 31, 2008, China BAK had $36.9 million in cash and a negative working capital of $10.0 million, reflecting a current ratio of 0.95:1. Total liabilities at quarter end, including short-term bank loans, bills payable and long-term debt, was $238.7 million and stockholders' equity totaled $145.4 million. China BAK had $95.2 million available for borrowing under its credit facilities.

Business Outlook

'During the second quarter of fiscal 2008, we continued to generate net revenues well in excess of prior year periods, reflecting strong growth in revenues from cylindrical cells and a sustained increase in revenues from aluminum case cells and battery packs. Our primary goal is to become profitable again in the coming quarters. To support this goal, we have made significant progress in the research and development of alternative raw materials for purposes of reducing our use of lithium cobalt dioxide, the price of which has continued to reach record highs.