SEC Info℠

Home

Search

My Interests

Help

Sign In

Please Sign In

CBAK Energy Technology, Inc. – ‘10-Q’ for 12/31/13

On:  Wednesday, 2/19/14, at 5:03pm ET   ·   For:  12/31/13   ·   Accession #:  1062993-14-961   ·   File #:  1-32898

Previous ‘10-Q’:  ‘10-Q/A’ on 8/23/13 for 3/31/13   ·   Next:  ‘10-Q’ on 5/20/14 for 3/31/14   ·   Latest:  ‘10-Q’ on 11/9/23 for 9/30/23

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

 Text Wildcards:  ? (any letter/digit),  * (many).  Search Logic:  for Documents:  & (and),  | (or);  for Text:  | (anywhere),  "(&)" (near).  Details... 

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 2/19/14  CBAK Energy Technology, Inc.      10-Q       12/31/13  100:8.5M                                   Newsfile Corp/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report -- form10q                         HTML    580K 
 2: EX-31.1     Certification -- §302 - SOA'02 -- exhibit31-1       HTML     30K 
 3: EX-32.1     Certification -- §906 - SOA'02 -- exhibit32-1       HTML     27K 
67: R1          Document and Entity Information                     HTML     53K 
54: R2          Consolidated Balance Sheets                         HTML    122K 
65: R3          Consolidated Balance Sheets (Parenthetical)         HTML     36K 
70: R4          Consolidated Statements of Comprehensive Loss       HTML    109K 
91: R5          Consolidated Statements of Shareholders' Equity     HTML     48K 
56: R6          Consolidated Statements of Cash Flows               HTML    124K 
64: R7          Principal Activities, Basis of Presentation and     HTML     76K 
                Organization                                                     
48: R8          Pledged Deposits                                    HTML     31K 
38: R9          Trade Accounts Receivable, net                      HTML     40K 
92: R10         Inventories                                         HTML     32K 
72: R11         Prepayments and Other Receivables                   HTML     44K 
71: R12         Property, Plant and Equipment, net                  HTML     50K 
78: R13         Prepaid Land Use Rights, net                        HTML     32K 
79: R14         Intangible Assets, net                              HTML     32K 
76: R15         Short-term Bank Loans                               HTML     37K 
80: R16         Accrued Expenses and Other Payables                 HTML     60K 
66: R17         Deferred Revenue                                    HTML     28K 
68: R18         Other Long-term Payables                            HTML     35K 
74: R19         Income Taxes, Deferred Tax Assets and Deferred Tax  HTML     61K 
                Liabilities                                                      
100: R20         Share-based Compensation                            HTML     62K  
87: R21         Net Loss per Share                                  HTML     33K 
60: R22         Fair Value of Financial Instruments                 HTML     33K 
73: R23         Commitments and Contingencies                       HTML     65K 
62: R24         Significant Concentrations                          HTML     41K 
29: R25         Segment Information                                 HTML     57K 
88: R26         Subsequent Events                                   HTML     28K 
96: R27         Pledged Deposits (Tables)                           HTML     32K 
43: R28         Trade Accounts Receivable, net (Tables)             HTML     39K 
42: R29         Inventories (Tables)                                HTML     30K 
46: R30         Prepayments and Other Receivables (Tables)          HTML     43K 
47: R31         Property, Plant and Equipment, net (Tables)         HTML     49K 
49: R32         Prepaid Land Use Rights, net (Tables)               HTML     31K 
18: R33         Intangible Assets, net (Tables)                     HTML     31K 
85: R34         Short-term Bank Loans (Tables)                      HTML     34K 
58: R35         Accrued Expenses and Other Payables (Tables)        HTML     43K 
61: R36         Other Long-term Payables (Tables)                   HTML     34K 
33: R37         Income Taxes, Deferred Tax Assets and Deferred Tax  HTML     57K 
                Liabilities (Tables)                                             
99: R38         Share-based Compensation (Tables)                   HTML     57K 
10: R39         Net Loss per Share (Tables)                         HTML     30K 
51: R40         Commitments and Contingencies (Tables)              HTML     48K 
90: R41         Significant Concentrations (Tables)                 HTML     39K 
31: R42         Segment Information (Tables)                        HTML     52K 
41: R43         Principal Activities, Basis of Presentation and     HTML    189K 
                Organization (Narrative) (Details)                               
45: R44         Inventories (Narrative) (Details)                   HTML     28K 
55: R45         Prepayments and Other Receivables (Narrative)       HTML     35K 
                (Details)                                                        
17: R46         Property, Plant and Equipment, net (Narrative)      HTML     34K 
                (Details)                                                        
37: R47         Prepaid Land Use Rights, net (Narrative) (Details)  HTML     28K 
12: R48         Intangible Assets, net (Narrative) (Details)        HTML     28K 
89: R49         Short-term Bank Loans (Narrative) (Details)         HTML     42K 
30: R50         Accrued Expenses and Other Payables (Narrative)     HTML    119K 
                (Details)                                                        
86: R51         Deferred Revenue (Narrative) (Details)              HTML     30K 
34: R52         Other Long-term Payables (Narrative) (Details)      HTML     26K 
52: R53         Income Taxes, Deferred Tax Assets and Deferred Tax  HTML     48K 
                Liabilities (Narrative) (Details)                                
11: R54         Share-based Compensation (Narrative) (Details)      HTML     74K 
15: R55         Net Loss per Share (Narrative) (Details)            HTML     32K 
44: R56         Commitments and Contingencies (Narrative)           HTML     78K 
                (Details)                                                        
21: R57         Significant Concentrations (Narrative) (Details)    HTML     32K 
93: R58         Subsequent Events (Narrative) (Details)             HTML     42K 
57: R59         Schedule of Pledged Deposits (Details)              HTML     40K 
77: R60         Schedule of Trade Accounts Receivable (Details)     HTML     44K 
36: R61         Schedule of Analysis of the Allowance for Doubtful  HTML     39K 
                Accounts (Details)                                               
39: R62         Schedule of Inventories (Details)                   HTML     40K 
84: R63         Schedule of Prepayments and Other Receivables       HTML     78K 
                (Details)                                                        
81: R64         Schedule of Analysis of Allowance for Doubtufl      HTML     33K 
                Accounts for Other Receivables (Details)                         
59: R65         Schedule of Property, Plant and Equipment           HTML     61K 
                (Details)                                                        
83: R66         Schedule of Depreciation Expense (Details)          HTML     44K 
35: R67         Schedule of Investment Property in Operating        HTML     31K 
                Leases (Details)                                                 
63: R68         Schedule of Minimum Future Rental Payments for      HTML     40K 
                Operating Leases (Details)                                       
95: R69         Schedule of Prepaid Land Use Rights (Details)       HTML     45K 
14: R70         Sdchedule of Intangible Assets (Details)            HTML     36K 
28: R71         Schedule of Facilities Secured by the Company's     HTML     60K 
                Assets (Details)                                                 
53: R72         Schedule of Accrued Expenses and Other Payables     HTML     96K 
                (Details)                                                        
20: R73         Schedule of Government Subsidiaries (Details)       HTML     59K 
98: R74         Schedule of Income Taxes (Details)                  HTML     37K 
32: R75         Schedule of Income Tax Reconciliation (Details)     HTML     67K 
22: R76         Schedule of Deferred Tax Assets and Liabilities     HTML     76K 
                (Details)                                                        
26: R77         SCHEDULE OF SUMMARY OF SHARE OPTION PLAN ACTIVITY   HTML     62K 
                June 22, 2009 (Details)                                          
16: R78         SCHEDULE OF VALUATION OF OPTIONS GRANTED ON June    HTML     34K 
                22, 2009 (Details)                                               
19: R79         SCHEDULE OF SUMMARY OF SHARE OPTION PLAN ACTIVITY   HTML     62K 
                April 8, 2010 (Details)                                          
69: R80         SCHEDULE OF VALUATION OF OPTIONS GRANTED ON April   HTML     34K 
                8, 2010 (Details)                                                
24: R81         Schedule of Earnings Per Share, Basic and Diluted   HTML     37K 
                (Details)                                                        
94: R82         Schedule of Capital Commitments (Details)           HTML     40K 
50: R83         Schedule Ofguarantees (Details)                     HTML     48K 
75: R84         Schedule of Discounted Bank Acceptance Bills        HTML     29K 
                (Details)                                                        
82: R85         Schedule of Customer Accounted for More Than 10%    HTML     40K 
                of the Company's Total Trade Accounts Receivable                 
                (Details)                                                        
23: R86         Schedule of Revenue by Major Customers by           HTML     38K 
                Reporting Segments (Details)                                     
25: R87         Schedule of Revenues by Segment (Details)           HTML    120K 
97: XML         IDEA XML File -- Filing Summary                      XML    154K 
13: EXCEL       IDEA Workbook of Financial Reports                  XLSX    173K 
40: EXCEL       IDEA Workbook of Financial Reports (.xls)            XLS    819K 
 4: EX-101.INS  XBRL Instance -- cbak-20131231                       XML   1.05M 
 6: EX-101.CAL  XBRL Calculations -- cbak-20131231_cal               XML    191K 
 7: EX-101.DEF  XBRL Definitions -- cbak-20131231_def                XML   1.66M 
 8: EX-101.LAB  XBRL Labels -- cbak-20131231_lab                     XML   3.45M 
 9: EX-101.PRE  XBRL Presentations -- cbak-20131231_pre              XML   1.83M 
 5: EX-101.SCH  XBRL Schema -- cbak-20131231                         XSD    632K 
27: ZIP         XBRL Zipped Folder -- 0001062993-14-000961-xbrl      Zip    250K 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)

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

For the quarterly period ended: December 31, 2013

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

For the transition period from ____________to _____________

Commission File Number: 001-32898

CHINA BAK BATTERY, INC.
(Exact Name of Registrant as Specified in Its Charter)

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

(86-755) 6188-6818, ext. 6856
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]               No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X]               No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Yes [  ]               No [X]

The number of shares outstanding of each of the issuer’s classes of common stock, as of February 14, 2014 is as follows:

CHINA BAK BATTERY, INC.

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION

PART II
OTHER INFORMATION

i

PART I
FINANCIAL INFORMATION

CHINA BAK BATTERY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2013 AND 2012

F-1

China BAK Battery, Inc. and subsidiaries
Condensed consolidated balance sheets
As of September 30, 2013 and December 31, 2013
(In US$)

See accompanying notes to the condensed consolidated financial statements.

F-2

China BAK Battery, Inc. and subsidiaries
Condensed consolidated statements of operations and comprehensive loss
For the three months ended December 31, 2012 and 2013
(Unaudited)
(In US$ except for number of shares)

See accompanying notes to the condensed consolidated financial statements.

F-3

China BAK Battery, Inc. and subsidiaries
Condensed consolidated statements of changes in shareholders’ equity
For the three months ended December 31, 2012 and 2013
(Unaudited)
(In US$ except for number of shares)

See accompanying notes to the condensed consolidated financial statements.

F-4

China BAK Battery, Inc. and subsidiaries
Condensed consolidated statements of cash flows
For the three months ended December 31, 2012 and 2013
(Unaudited)
(In US$)

See accompanying notes to the condensed consolidated financial statements.

F-5

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013
(In US$ except for number of shares)
(Unaudited)

1. Principal Activities, Basis of Presentation and Organization

Principal Activities

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

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

Basis of Presentation and Organization

As of December 31, 2013, the Company’s subsidiaries consisted of: i) BAK International Limited (“BAK International”), a wholly owned limited liability company incorporated in Hong Kong on December 29, 2003 as BATCO International Limited, which changed its name to BAK International Limited on November 3, 2004; ii) Shenzhen BAK Battery Co., Ltd. (“Shenzhen BAK”), a wholly owned limited liability company established on August 3, 2001 in the People’s Republic of China (“PRC”); iii) China BAK Asia Holdings Limited, a wholly owned limited liability company incorporated in Hong Kong on July 9, 2013; iv) BAK Battery (Shenzhen) Co., Ltd. (“BAK Battery (SZ)”), a wholly owned limited liability company established on August 15, 2005 in the PRC as BAK Electronics (Shenzhen) Co., Ltd., which changed its name to BAK Battery (Shenzhen) Co., Ltd. on March 5, 2013; v) BAK International (Tianjin) Ltd. (“BAK Tianjin”), a wholly owned limited liability company established on December 12, 2006 in the PRC; vi) Dalian BAK Trading Co., Ltd. (“BAK Dalian”), a wholly owned limited company established on August 14, 2013 in the PRC; vii) Dalian BAK Power Battery Co., Ltd. (“Dalian BAK Power”), a wholly owned limited company established on December 27, 2013; (viii) BAK Battery Canada Ltd. (“BAK Canada”), a wholly owned limited liability company established on December 20, 2006 in Canada as BAK Canada Battery Ltd., which changed its name to BAK Battery Canada Ltd. on December 22, 2006. The Company decided to dissolve BAK Canada due to the financial difficulties and filed for bankruptcy on March 28, 2013. As of December 31, 2013, BAK Canada still has not yet been dissolved; ix) BAK Europe GmbH (“BAK Europe”), a wholly owned limited liability company established in Germany on November 28, 2007; and x) BAK Telecom India Private Limited (“BAK India”), a wholly owned limited liability company established in India on August 14, 2008. As of December 31, 2013, BAK International beneficially owns 100% of BAK India partly through a nominee agreement with one of its employees.

F-6

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

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

Basis of Presentation and Organization (continued)

BAK Tianjin was established in Tianjin Technology Industrial District on December 12, 2006 as a wholly owned subsidiary of BAK International with registered capital of $99,990,000. The total contribution from BAK International was $50,000,000. On September 17, 2012, BAK Tianjin issued an application with respect to the decrease of capital from $99,990,000 to $50,000,000. On November 27, 2012 the Business Administration Bureau of Beichen District, Tianjin, approved the request of BAK Tianjin’s capital reduction. According to the approval, the BAK Tianjin’s aggregate investment still remains at $99,990,000 while the registered capital was reduced to $50,000,000. BAK Tianjin is principally engaged in the manufacture of larger lithium ion batteries for use in cordless power tools and various types of vehicles. The Company intends to move all the BAK Tianjin assets except for land use rights and buildings to BAK Dalian in fiscal year 2014.

Dalian BAK Power was established on December 27, 2013 as a wholly owned subsidiary of BAK Asia with a registered capital of $30,000,000 (Note 17(i)). Pursuant to Dalian BAK Power’s articles of association and relevant PRC regulations, BAK Asia was required to contribute $6,000,000 to Dalian BAK Power as capital (representing 20% of Dalian BAK Power’s registered capital) on or before March 26, 2014 (Note 17(i)).

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

F-7

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

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

Basis of Presentation and Organization (continued)

On January 20, 2005, the Company completed a share swap transaction with the shareholders of BAK International. The share swap transaction, also referred to as the “reverse acquisition” of the Company, was consummated under Nevada law pursuant to the terms of a Securities Exchange Agreement entered by and among China BAK, BAK International and the shareholders of BAK International on January 20, 2005. Pursuant to the Securities Exchange Agreement, the Company issued 7,965,215 shares of common stock, par value $0.001 per share, to the shareholders of BAK International (including 6,245,128 shares to the original shareholders and 1,720,087 shares to new investors who had purchased shares in the private placement described below), representing approximately 97.2% of the Company’s post-exchange issued and outstanding common stock, in exchange for 100% of the outstanding capital stock of BAK International.

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

Also on January 20, 2005, immediately prior to consummating the share swap transaction, BAK International executed a private placement of its common stock with unrelated investors whereby it issued an aggregate of 1,720,087 shares of common stock for gross proceeds of $17,000,000. In conjunction with this financing, Mr. Xiangqian Li, the Chairman and Chief Executive Officer of the Company, agreed to place 435,910 shares of the Company's common stock owned by him into an escrow account pursuant to an Escrow Agreement dated January 20, 2005 (the “Escrow Agreement”). Pursuant to the Escrow Agreement, 50% of the escrowed shares were to be released to the investors in the private placement if audited net income of the Company for the fiscal year ended September 30, 2005 was not at least $12,000,000, and the remaining 50% was to be released to investors in the private placement if audited net income of the Company for the fiscal year ended September 30, 2006 was not at least $27,000,000. If the audited net income of the Company for the fiscal years ended September 30, 2005 and 2006 reached the above-mentioned targets, the 435,910 shares would be released to Mr. Xiangqian Li in the amount of 50% upon reaching the 2005 target and the remaining 50% upon reaching the 2006 target.

Under accounting principles generally accepted in the United States of America (“US GAAP”), escrow agreements such as the one established by Mr. Xiangqian Li generally constitute compensation if, following attainment of a performance threshold, shares are returned to a company officer. The Company determined that without consideration of the compensation charge, the performance thresholds for the year ended September 30, 2005 would be achieved. However, after consideration of a related compensation charge, the Company determined that such thresholds would not have been achieved. The Company also determined that, even without consideration of a compensation charge, the performance thresholds for the year ended September 30, 2006 would not be achieved.

F-8

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

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

Basis of Presentation and Organization (continued)

While the 217,955 escrow shares relating to the 2005 performance threshold were previously released to Mr. Xiangqian Li, Mr. Xiangqian Li executed a further undertaking on August 21, 2006 to return those shares to the escrow agent for the distribution to the relevant investors. However, such shares were not returned to the escrow agent, but, pursuant to a Delivery of Make Good Shares, Settlement and Release Agreement between the Company, BAK International and Mr. Li entered into on October 22, 2007 (the “Li Settlement Agreement”), such shares were ultimately delivered to the Company as described below. Because the Company failed to satisfy the performance threshold for the fiscal year ended September 30, 2006, the remaining 217,955 escrow shares relating to the fiscal year 2006 performance threshold were released to the relevant investors. As Mr. Li has not retained any of the shares placed into escrow, and as the investors party to the Escrow Agreement are only shareholders of the Company and do not have and are not expected to have any other relationship to the Company, the Company has not recorded a compensation charge for the years ended September 30, 2005 and 2006.

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

In November 2007, Mr. Xiangqian Li delivered the 217,955 shares related to the 2005 performance threshold to BAK International pursuant to the Li Settlement Agreement; BAK International in turn delivered the shares to the Company. Such shares (other than those issued to investors pursuant to the 2008 Settlement Agreements, as described below) are now held by the Company. Upon receipt of these shares, the Company and BAK International released all claims and causes of action against Mr. Xiangqian Li regarding the shares, and Mr. Xiangqian Li released all claims and causes of action against the Company and BAK International regarding the shares. Under the terms of the Li Settlement Agreement, the Company commenced negotiations with the investors who participated in the Company’s January 2005 private placement in order to achieve a complete settlement of BAK International’s obligations (and the Company’s obligations to the extent it has any) under the applicable agreements with such investors.

Beginning on March 13, 2008, the Company has entered into settlement agreements (the “2008 Settlement Agreements”) with certain investors in the January 2005 private placement. Since the other investors have never submitted any claims regarding this matter, the Company did not reach any settlement with them.

F-9

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

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

Basis of Presentation and Organization (continued)

Pursuant to the 2008 Settlement Agreements, the Company and the settling investors have agreed, without any admission of liability, to a settlement and mutual release from all claims relating to the January 2005 private placement, including all claims relating to the escrow shares related to the 2005 performance threshold that had been placed into escrow by Mr. Xiangqian Li, as well as all claims, including claims for liquidated damages relating to registration rights granted in connection with the January 2005 private placement. Under the 2008 Settlement Agreement, the Company has made settlement payments to each of the settling investors of the number of shares of the Company’s common stock equivalent to 50% of the number of the escrow shares related to the 2005 performance threshold these investors had claimed; aggregate settlement payments as of December 31, 2013 amounted to 73,749 shares. Share payments to date have been made in reliance upon the exemptions from registration provided by Section 4(2) and/or other applicable provisions of the Securities Act of 1933, as amended. In accordance with the 2008 Settlement Agreements, the Company filed a registration statement covering the resale of such shares which was declared effective by the SEC on June 26, 2008.

Pursuant to the Li Settlement Agreement, the 2008 Settlement Agreements and upon the release of the 217,955 escrow shares relating to the fiscal year 2006 performance threshold to the relevant investors, neither Mr. Li or the Company have any obligations to the investors who participated in the Company’s January 2005 private placement relating to the escrow shares.

As of December 31, 2013, the Company has not received any claim from the other investors who have not been covered by the “2008 Settlement Agreements” in the January 2005 private placement.

As the Company has transferred the 217,955 shares related to the 2006 performance threshold to the relevant investors in fiscal year 2007 and the Company also has transferred 73,749 shares relating to the 2005 performance threshold to the investors who had entered the “2008 Settlement Agreements” with us in fiscal year 2008, pursuant to “Li Settlement Agreement” and “2008 Settlement Agreements”, neither Mr. Li nor the Company has not had any remaining obligations to those related investors who participated in the Company’s January 2005 private placement relating to the escrow shares.

On October 26, 2012, the Company effected a 1-for-5 reverse stock split of its issued and outstanding shares of common stock and a proportional reduction of its authorized shares of common stock. All common share and per share amounts, and exercise prices of common stock options disclosed herein and in the accompanying consolidated unaudited financial statements have been retroactively restated to reflect the reverse stock split.

The Company’s condensed consolidated financial statements have been prepared under US GAAP.

F-10

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

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

Basis of Presentation and Organization (continued)

These interim condensed consolidated financial statements are unaudited. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these condensed consolidated financial statements, which are of a normal and recurring nature, have been included. The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The following (a) condensed consolidated balance sheet as of December 31, 2013, which was derived from the Company’s audited financial statements, and (b) the unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, though the Company believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying footnotes of the Company for the year ended September 30, 2013.

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

The Company has net liabilities, a working capital deficiency, accumulated deficit from recurring net losses incurred for the current and prior periods and significant short-term debt obligations maturing in less than one year as of December 31, 2013. The Company has been suffering severe cash flow deficiencies. The Company defaulted on repayment of loans from Bank of China due in August 2013. Upon request of Bank of China, Shenzhen Municipal Intermediate Court has ordered to freeze all of the Company's properties in Shenzhen BAK Industrial Park and Tianjin Industrial Park Zone near the end of fiscal year 2013 whereby the Company could not transfer these assets or pledge these assets for any other borrowings. In order to extend the bank loans to various due dates until May 2014, the Company was required to pledge 100% equity of Shenzhen BAK and almost all of its assets in Shenzhen and Tianjin, including land use rights and property rights, equipment, accounts receivable and inventories. The Company repaid the loans to Bank of China and the order was released on January 13, 2014. As of December 31, 2013, the Company had access to $154.2 million in short-term credit facilities and $38.2 million in other lines of credit, of which $153.1 million of bank loans and $36.7 million of bills payable were utilized. These factors raise substantial doubts about the Company's ability to continue as a going concern.

F-11

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

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

Basis of Presentation and Organization (continued)

The Company intends to sell part of its low efficiency assets and appreciating land and properties to repay its short term debts and to provide cash for the development of more promising products such as high power batteries and electric vehicle batteries. The Company transferred its 100% equity interest in Tianjin Meicai to an unrelated party on August 27, 2013. The Company also has intentions to sell its 100% equity interest in BAK International and its subsidiaries (including all their assets and liabilities), and the properties in Tianjin. The Company is in negotiation with the potential buyers about contract terms and clauses. The disposals of these assets require statutory review and approval and the approval by its shareholders. Prior to the completion of these disposals, the potential buyers preliminarily agreed in November and December 2013 that they would lend sufficient money to the Company to help the Company repay past due and maturing bank loans, on the condition that the Company makes certain pledges and guarantees, including its 100% equity in BAK International.

F-12

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

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

Basis of Presentation and Organization (continued)

Up to the date of these financial statements, the Company repaid bank loans of $98.4 million (RMB595.6 million). The Company is in negotiation with the potential buyers about contract terms and clauses.

After the disposal of these assets, the Company will retain BAK Asia and its subsidiaries, BAK Dalian and Dalian BAK Power. It is the Company's understanding that the Dalian government will grant certain government subsidies to it, including but not limited to land use rights at a favorable price. As of December 31, 2013, the Company received an advance of $24.8 million (RMB150 million) from the Management Committee of Dalian Economic Zone to finance the Company's removal of operating assets from Tianjin to Dalian (Note 12). The Company is in the process of building a new manufacturing site in Dalian with all the operating assets, primarily machinery and equipment, moved from BAK Tianjin, while retaining its customers, employees, patents and technologies. BAK Dalian will focus on the new energy high power battery business, for use in electric vehicle, light electric vehicles and other high power applications. The Company believes with the significant reduction of liabilities and disposal of its traditional low margin battery business, it can continue as a going concern and return to profitability.

It is expected that after the restructuring mentioned above, China BAK will continue to be a US listing company with a low level of liabilities.

The condensed consolidated financial statements for the three months ended December 31, 2013 have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty related to the Company's ability to continue as a going concern.

Reclassification

Given the magnitude of provision for doubtful accounts of $6,200,065, it was separately presented on the face of income statement for the quarter ended December 31, 2012, instead of presented as part of general and administrative expenses of $9,967,151.

F-13

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

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

Recently Issued Accounting Standards

In March 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2013-05, Foreign Currency Matters, (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (ASU 2013-05), to resolve a diversity in accounting for the cumulative translation adjustment of foreign currency upon derecognition of a foreign subsidiary or group of assets. ASU 2013-05 requires the parent to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. Further, ASU 2013-05 clarified that the parent should apply the guidance in subtopic 810-10 if there is a sale of an investment in a foreign entity, including both (1) events that result in the loss of a controlling financial interest in a foreign entity and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date. Accordingly, the cumulative translation adjustment should be released into net income upon the occurrence of those events. ASU 2013-05 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The, guidance should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. If an entity elects to early adopt the guidance, it should apply the guidance as of the beginning of the entity’s fiscal year of adoption. The Company does not expect ASU 2013-05 to have a significant impact on its consolidated results of operations and financial condition.

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, Income Taxes (Topic 740)(ASU 2013-11). The amendments in this update provide guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. These amendments provide that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The Company does not expect ASU 2013-11 to have a significant impact on its consolidated results of operations and financial condition.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

F-14

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

2. Pledged Deposits

Pledged deposits as of September 30, 2013 and December 31, 2013 consisted of the following:

3. Trade Accounts Receivable, net

Trade accounts receivable as of September 30, 2013 and December 31, 2013 consisted of the following:

An analysis of the allowance for doubtful accounts is as follows:

F-15

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

4. Inventories

Inventories as of September 30, 2013 and December 31, 2013 consisted of the following:

During the three months ended December 31, 2012 and 2013, write-down of obsolete inventories to lower of cost or market of $19,275,145 and $4,638,420, respectively, were charged to cost of revenues.

5. Prepayments and Other Receivables

F-16

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

5. Prepayments and Other Receivables (continued)

An analysis of the allowance for doubtful accounts is as follows:

6. Property, Plant and Equipment, net

Property, plant and equipment as of September 30, 2013 and December 31, 2013 consisted of the following:

F-17

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

6. Property, Plant and Equipment, net (continued)

The following is a schedule by years of minimum future rentals on noncancelable operating leases as of December 31, 2013. Year ending September 30,

F-18

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

7. Prepaid Land Use Rights, net

Prepaid land use rights as of September 30, 2013 and December 31, 2013 consisted of the followings:

Amortization expenses of the prepaid land use rights were $185,935 and $134,723 for the three months ended December 31, 2012 and 2013, respectively.

8. Intangible Assets, net

Intangible assets as of September 30, 2013 and December 31, 2013 consist of the following:

Intangible assets represent the trademarks, computer software and technology used for battery production and research.

Amortization expenses were $32,668 and $48,782 for the three months ended December 31, 2012 and 2013, respectively.

F-19

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

9. Short-term Bank Loans

As of September 30, 2013 and December 31, 2013, the Company had several short-term bank loans with aggregate outstanding balances of $151,404,677 and $153,054,397, respectively. The loans were primarily obtained for general working capital, carried at interest rates ranging from 5.88% to 15.00% per annum, and had maturity dates ranging from 1 to 6 months. The loans are guaranteed by Mr. Li, the Company's CEO, Ms. Xiaoqiu Yu, the wife of the CEO and the loans from Bank of China are pledged by 100% shares of Shenzhen BAK. These facilities were also secured by the Company's assets with the following carrying values:

During the three months ended December 31, 2012 and 2013, interest expenses of $3,196,933 and $2,746,369, respectively, was incurred on the Company's short-term bank borrowings.

F-20

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

10. Accrued Expenses and Other Payables

Accrued expenses and other payables as of September 30, 2013 and December 31, 2013 consisted of the following:

As of September 30, 2013 and December 31, 2013, the Company had advances from unrelated parties of $28,282,322 and $49,243,296, respectively, all of which are unsecured, non- interest bearing and repayable on demand except for:

F-21

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

10. Accrued Expenses and Other Payables (Continued)

F-22

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

10. Accrued Expenses and Other Payables (Continued)

During the three months ended December 31, 2012 and 2013, interest expenses of $nil and $1,543,968, respectively, was incurred on the Company's advances from unrelated third parties.

11. Deferred Revenue

Deferred revenue mainly represents a government grant subsidy of $9.2 million (RMB56 million) for costs of land use rights relating to BAK Industrial Park, which is amortized on a straight-line basis over the estimated useful lives of the depreciable facilities constructed thereon of 35 years.

12. Other Long-term Payables

Other long-term payables as of September 30, 2013 and December 31, 2013 consist of the following:

The Company will recognize these grants as income or offset against related expenditures when there are no present or future obligations for the subsidized projects.

F-23

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

13. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities

The Company’s provision for income taxes consisted of:

United States Tax
China BAK is subject to a statutory tax rate of 35% under United States of America tax law. No provision for income taxes in the United States or elsewhere has been made as China BAK had no taxable income for the three months ended December 31, 2012 and 2013.

Canada States Tax
BAK Canada is subject to statutory tax rate of 38% under Canada tax law. No provision for income taxes in Canada has been made as BAK Canada had no taxable income for the three months ended December 31, 2012 and 2013.

German States Tax
BAK Europe is subject to 25% statutory tax rate under Germany tax law.

India Tax
BAK India is subject to 30% statutory tax rate under India tax law. No provision for income taxes in India has been made as BAK India had no taxable income for the three months ended December 31, 2012 and 2013.

Hong Kong Tax
BAK International is subject to Hong Kong profits tax rate of 16.5% . There is no taxable income for BAK International for the three months ended December 31, 2012 and 2013, thus BAK International did not incur any Hong Kong profits tax during the periods presented.

PRC Tax
Shenzhen BAK is entitled to a preferential enterprise income tax rate of 15% for the three months ended December 31, 2012 and 2013.

BAK Electronics, BAK Tianjin, BAK Dalian and Dalian BAK Power are subject to an income tax rate of 25%. BAK Electronics and BAK Tianjin did not incur any enterprise income tax for the current year due to cumulative tax losses.

F-24

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

13. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities (continued)

A reconciliation of the provision for income taxes determined at the statutory income tax to the Company's income tax expenses as follows:

As of September 30, 2013 and December 31, 2013, the Company’s U.S. entity, had net operating loss carry forwards of $2,511,374 and $2,625,475 respectively, available to reduce future taxable income which will expire in various years through 2030 and the Company’s PRC subsidiaries had net operating loss carry forwards of $105,668,004 and $110,282,840 which will expire in various years through 2018. Management believes it is more likely than not that the Company will not realize these potential tax benefits as these operations will not generate any operating profits in the foreseeable future. As a result, the full amount of the valuation allowance was provided against the potential tax benefits.

F-25

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

13. Income Taxes, Deferred Tax Assets and Deferred Tax Liabilities (continued)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of September 30, 2013 and December 31, 2013 are presented below:

As of September 30, 2013 and December 31, 2013, the Company has no material unrecognized tax benefits which would favorably affect the effective income tax rates in future periods and does not believe that there will be any significant increases or decreases of unrecognized tax benefits within the next twelve months. No interest or penalties relating to income tax matters have been imposed on the Company during the three months ended December 31, 2012 and 2013, and no provision for interest and penalties is deemed necessary as of December 31, 2012 and 2013.

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.

F-26

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

14. Share-based Compensation

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

Stock Option Plan

In May 2005, the Board of Directors adopted the China BAK Battery, Inc. 2005 Stock Option Plan (the “Plan”). The Plan originally authorized the issuance of up to 800,000 shares of the Company’s common stock, pursuant to stock options granted under the Plan, or as grants of restricted stock. The exercise price of options granted pursuant to the Plan must be at least equal to the fair market value of the Company’s common stock at the date of the grant. Fair market value is determined at the discretion of the designated committee on the basis of reported sales prices for the Company’s common stock over a ten-business-day period ending on the grant date. The Plan will terminate on May 16, 2055. On July 28, 2008, the Company’s stockholders approved certain amendments to the Plan, including an amendment increasing the total number of shares available for issuance under the Plan to 1,600,000.

On June 22, 2009, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of options to purchase 385,640 shares of the Company’s common stock to certain key employees, officers and consultants with an exercise price of $14.05 per share and a contractual life of 7 years. In accordance with the vesting provisions of the grants, the options will become vested and exercisable over five years in twenty equal quarterly installments on the first day of each fiscal quarter beginning on October 1, 2009.

A summary of share option plan activity for these options during the three months ended December 31, 2013 is presented below:

⁽¹⁾ The intrinsic values of option at December 31, 2013 was zero since the per share market values of common stock of $2.22, was lower than the exercise price of the option of $14.05 per share.

The weighted average grant-date fair value of options granted on June 22, 2009 was $12.30 per share. The Company recorded non-cash share-based compensation expense of $86,582 and of $32,932 for the three months ended December 31, 2012 and 2013 respectively.

F-27

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

14. Share-based Compensation (continued)

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

As of December 31, 2013, there were unrecognized compensation costs of $32,216 related to the above non-vested share options. These costs are expected to be recognized over a weighted average period of 0.75 year.

On April 8, 2010, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of options to purchase 20,000 shares of the Company’s common stock to certain key management with an exercise price of $12.15 per share and a contractual life of 7.5 years. In accordance with the vesting provisions of the grants, the options will become vested and exercisable in eight equal installments beginning on each quarter after September 30, 2010.

A summary of share option plan activity for these options during the three months period ended December 31, 2013 is presented below:

⁽¹⁾ The intrinsic values of option at December 31, 2013 was zero since the per share market values of common stock of $2.22, was lower than the exercise price of the option of $12.15 per share.

The weighted average grant-date fair value of options granted on April 8, 2010 was $7.05 per share. The Company recorded non-cash share-based compensation expense of $4,510 and nil for the three months ended December 31, 2012 and 2013, respectively, in respect of share options granted on April 8, 2010 which was allocated to research and development expense.

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

As of December 31, 2013, there were no unrecognized compensation costs related to the above non-vested share options.

F-28

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

14. Share-based Compensation (continued)

Pursuant to the Plan and in accordance with the China BAK Battery, Inc. Compensation Plan for Non-Employee Directors, the Compensation Committee of the Company’s Board of Directors recommended and approved the grant of 100,000 restricted shares to the Chief Executive Officer, Mr. Xiangqian Li with a fair value of $14.05 per share on June 22, 2009. In accordance with the vesting schedule of the grant, the restricted shares will vest in twenty equal quarterly installments on the first day of each fiscal quarter beginning on October 1, 2009.

The Company recorded non-cash share-based compensation expense of $29,954 and $11,089 for the three months ended December 31, 2012 and 2013, respectively, in respect of the restricted shares granted on June 22, 2009, which was allocated to general and administrative expenses.

As of December 31, 2013, there was unrecognized stock-based compensation costs of $12,511 associated with these restricted shares granted to Mr. Xiangqian Li. These costs are expected to be recognized over a weighted-average period of 0.75 years.

As the Company itself is an investment holding company which is not expected to generate operating profits to realize the tax benefits arising from its net operating loss carried forward, no income tax benefits were recognized for such stock-based compensation cost under stock option plan for the three months ended December 31, 2012 and 2013.

15. Net Loss Per Share

The following is the calculation of net loss per share:

For the three months ended December, 2013, the outstanding 24,600 stock options and outstanding 15,000 shares of restricted stock were anti-dilutive and excluded from diluted net loss per share. For the three months ended December 31, 2012, the outstanding 791,671 stock options and outstanding 35,000 shares of restricted stock were anti-dilutive and excluded from diluted net loss per share.

F-29

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

16. Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. Certain current assets and current liabilities are financial instruments. Management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and, if applicable, their current interest rates are equivalent to interest rates currently available. The three levels of valuation hierarchy are defined as follows:

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, pledged deposits, trade accounts receivable, other receivables, short-term bank loans, short-term loans, other long-term payable, accounts and bills payable and other payables approximate their fair values because of the short maturity of these instruments or the rate of interest of these instruments approximate the market rate of interest.

17. Commitments and Contingencies

As of September 30, 2013 and December 31, 2013, the Company had the following contracted capital commitments:

F-30

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

17. Commitments and Contingencies (continued)

As of September 30, 2013 and December 31, 2013, the Company had not obtained property ownership certificates relating to certain buildings of the BAK Industrial Park in Shenzhen with carrying amounts of $18,179,147 and $17,821,699, respectively. The application for these property ownership certificates is still in process.

As of December 31, 2013, the Company had not obtained property ownership certificate relating to the Research and Development Test Centre in Shenzhen which was completed in July 2013. The carrying amount of this centre (buildings portion) was $45,505,135 as of December 31, 2013. In January 9, 2014, the Company obtained the property ownership certificate and is in the process of purchasing an insurance policy for the building.

On July 26, 2013, the Company purchased a new insurance policy for its manufacturing facilities at BAK Industrial Park in Shenzhen, China. Under the new insurance policy entered into with Ping An Property & Casualty Insurance Company of China, Ltd, the insured amount for the manufacturing facilities at BAK Industrial Park is RMB663,612,000 (approximately $109.6 million) for the period from July 27, 2013 to July 26, 2014.

On July 2, 2013, the Company also acquired an insurance policy from Ping An Property & Casualty Insurance Company of China, Ltd. for the Company’s manufacturing facilities in Tianjin in the amount of RMB243,093,819 (approximately $40.2 million) for the period from July 2, 2013 to July 2, 2014.

In order to secure the supplies of certain raw materials and equipment and upon the request of suppliers, the Company has given guarantees of bank borrowings with a maximum obligation period of from one to three years to certain parties to the maximum extent as follows:

F-31

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

17. Commitments and Contingencies (continued)

On April 25, 2012, the Company entered into a guarantee contract to serve as the guarantor for the bank loan borrowed from China Minsheng Banking Corp., Ltd, in the amount of $2.5 million by Tianjin Huaxiahongyuan Ltd. (“Tianjin Huaxiahongyuan”), one of the Company’s prospective suppliers of chemical raw materials such as lithium cobalt oxides, for the period from April 25, 2012 to April 25, 2015. On May 17, 2013, the Company executed a new guarantee contract with Bank of Dalian to replace the existing guarantee contract with the same terms and conditions from May 22, 2013 to May 21, 2016. Under this guarantee contract, the Company shall perform all obligations of Tianjin Huaxiahongyuan under the loan contract if Tianjin Huaxiahongyuan fails to perform its obligations as set forth in the loan contract.

On May 25, 2012, the Company entered into a guarantee contract to serve as the guarantor for the bank loan borrowed from Bank of China Shenzhen Branch in the amount of $3.2 million by Shenzhen Yasu Technology Co. Ltd. (“Shenzhen Yasu”), one of the Company’s prospective suppliers of chemical raw materials such as lithium cobalt oxides, for the period from May 25, 2012 to May 25, 2015. Under this guarantee contract, the Company shall perform all obligations of Shenzhen Yasu under the loan contract if Shenzhen Yasu fails to perform its obligations as set forth in the loan contract.

The Company renewed a guarantee contract to serve as the guarantor for the bank loan which expired on June 20, 2013, borrowed from Ping An Bank (Shenzhen Pinghu Branch) in the amount of $5.8 million by Shenzhen Yasu one of the Company’s prospective suppliers of chemical raw materials such as lithium cobalt oxides, originally for the period from June 25, 2012 to June 25, 2015 and extended to June 24, 2016. Under this guarantee contract, the Company shall perform all obligations of Shenzhen Yasu under the loan contract if Shenzhen Yasu fails to perform its obligations as set forth in the loan contract.

On August 15, 2011, the Company entered into a guarantee contract to serve as the guarantor for the bank loan borrowed from Agricultural Bank of China Shenzhen Branch in the amount of $9.7 million by Shenzhen Langjin Technology Development Co. Ltd. (“Shenzhen Langjin”), one of the Company’s prospective suppliers of chemical raw materials such as battery separator paper, for the period from August 15, 2011 to August 14, 2014. Under this guarantee contract, the Company shall perform all obligations of Shenzhen Langjin under the loan contract if Shenzhen Langjin fails to perform its obligations as set forth in the loan contract.

On April 3, 2013, the Company entered into a guarantee agreement with Jilin Province Trust & Investment Co., Ltd, under which the Company agrees to guarantee loans to its chemical raw material supplier, Hubei Yanguang Energy Technology Co. Ltd., a non-related party, to the extent of RMB30 million (approximately $5.0 million) that it owes to other parties. The guarantee period is from April 3, 2013 to April 2, 2016. The Company believes that Hubei Yanguang Energy Technology Co. Ltd owns assets including land use rights covering an area of approximately 1,330,000 square meters and buildings thereon in Hubei, the PRC, and should be financially capable to repay the above mentioned loans upon maturity in April 2014.

It is a common practice among companies in the region of China where the Company is located to provide guarantees for bank debts of existing or prospective business partners with no consideration given. It is considered a “favor for favor” business practice and is commonly required by the lending banks in these cases.

F-32

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

17. Commitments and Contingencies (continued)

The Company has also guaranteed the loans of a related party under the common control of Mr. Xiangqian Li in the amount of approximately $4.9 million and $5.0 million as of September 30, 2013 and December 31, 2013, respectively.

Tianjin BAK New Energy Research Institute Co., Ltd (“Tianjin BAK”) is a company under the common control of Mr Xianqian Li, the Company’s CEO. The Company entered into various guarantee contracts to serve as the guarantor for the bank loans borrowed from Bank of Dalian by Tianjin BAK in the amount of $5.0 million with the guarantee period from July 11, 2013 to July 10, 2016.

On January 5, 2013, the Company received a notice that the Shenzhen Langjin Technology Development Co. Ltd. had defaulted on their loan guaranteed by the Company and two other companies and demanded immediate payment of the full guaranteed amount RMB60 million (US$9.7 million) from the Company and two other co-guarantors. As the two other co-guarantors had the ability to pay RMB14 million (US$2.3 million) only, the Company was demanded to pay the remaining balance. During fiscal 2013, the Company has paid China Agricultural Bank an amount of RMB46,490,253 ($7.5 million). The Company was able to recover an indemnification amount from Shenzhen Langjin that totaled RMB46,456,681($7.5 million).

During the three months ended December 31, 2012 and 2013, the Company recorded a net loss arising from loan guarantees of $7.4 million and nil, respectively.

As of December 31, 2013 and as of the filing date of this form 10-Q, the Company has assessed the performance risk of these guarantees and the fair value of the obligation arising there from and has considered it is immaterial to the consolidated financial statements. Therefore, except for the obligations relating to Shenzhen Langjin, no obligations in respect of the above guarantees were recognized as of December 31, 2013.

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

The Company's outstanding discounted and transferred bills as of September 30, 2013 and December 31, 2013 are summarized as follows:

F-33

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

17. Commitments and Contingencies (continued)

From time to time, The Company may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. Other than the legal proceeding set forth below, the Company is currently not aware of any such legal proceedings or claims that the Company believe will have an adverse effect on our business, financial condition or operating results:

China BAK Battery, Inc. has been named as a second defendant in the case of Safeco Ins. Co. of Am. v. Hewlett-Packard Co. et al., filed in the Superior Court of the State of California, County of Ventura. It is an action for negligence and strict product liability. The plaintiff alleges that a product manufactured by the Company was used in a Hewlett Packard laptop, which malfunctioned and caused fire damage in the home of a consumer (the Plaintiff’s insured). The total damages sought are $126,978, plus interest and fees. The Company believes that the plaintiff's claims are without merit and intends to vigorously defend itself in this lawsuit.

18. Significant Concentrations

The Company had two customers that individually comprised 10% or more of net revenue for the three months ended December 31, 2012 and 2013 respectively as follows:

* Comprised less than 10% of net revenue for the respective periods.

The Company had two customers that individually comprised 10% or more of accounts receivable as of September 30, 2013 and December 31, 2013 as follows:

** Comprised less than 10% of accounts receivable as of December 31, 2013.

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents and pledged deposits. As of September 30, 2013 and December 31, 2013, substantially all of the Company’s cash and cash equivalents and pledged deposits were held by major financial institutions located in the PRC, which management believes are of high credit quality.

F-34

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

19. Segment Information

The Company used to engage in one business segment, the manufacture, commercialization and distribution of a wide variety of standard and customized lithium ion rechargeable batteries for use in a wide array of applications. The Company manufactured five types of Li-ion rechargeable batteries: aluminum-case cell, battery pack, cylindrical cell, lithium polymer cell and high-power lithium battery cell. The Company's products are sold to packing plants operated by third parties primarily for use in mobile phones and other electronic devices. Starting from the three months ended December 31, 2013, the Company is also engaged in the business segment of property lease and management. Net revenues for the three months ended December 31, 2012 and 2013 were as follows:

F-35

China BAK Battery, Inc. and subsidiaries
Notes to the condensed consolidated financial statements
For the three months ended December 31, 2012 and 2013 (continued)
(In US$ except for number of shares)
(Unaudited)

19. Segment Information (Continued)

20. Subsequent Events

On November 20, 2013, the Company received the first installment loan from Tianjin Zhantuo $8.26 million (RMB50 million) pursuant to the Memorandum of Understanding on November 20, 2013 (Note 10(d)). On January 7 and January 21, 2014, the Company received the second and third installment loans in the amount of $1.07 million (RMB6.5 million) and $10.41 million (RMB63 million) respectively from Tianjin Zhantuo. The aggregate loans from Tianjin Zhantuo of $19.74 million (RMB119.5 million) are interest-free, repayable on demand and secured by property and land use right #1 and buildings of Tianjin Industrial Park Zone and the Company’s 100% equity interest of BAK Tianjin. The repayment of the loans is also guaranteed by BAK International and BAK Tianjin.

F-36

The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.

Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A, “Risk Factors” described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

Use of Terms

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:

• “Company,” “we,” “us” and “our” are to the combined business of China BAK Battery, Inc., a Nevada corporation, and its consolidated subsidiaries;
• “BAK International” are to our Hong Kong subsidiary, BAK International Limited;
• “BAK Europe” are to our German subsidiary, BAK Europe GmbH;
• “BAK Canada” are to our Canadian subsidiary, BAK Battery Canada Ltd.;
• “BAK India” are to our Indian subsidiary, BAK Telecom India Private Limited;
• “Shenzhen BAK” are to our PRC subsidiary, Shenzhen BAK Battery Co., Ltd.;
• “BAK Tianjin” are to our PRC subsidiary, BAK International (Tianjin) Ltd.;
• “BAK Battery” are to our PRC subsidiary, BAK Battery (Shenzhen) Co., Ltd.;
• “BAK Asia” are to our Hong Kong subsidiary, China BAK Asia Holdings Limited;
• “BAK Dalian” are to our PRC subsidiary, Dalian BAK Trading Co., Ltd.;
• “Dalian BAK Power” are to our PRC subsidiary, Dalian BAK Power Battery Co., Ltd;
• “China” and “PRC” are to the People’s Republic of China;
• “RMB” are to Renminbi, the legal currency of China;
• “U.S. dollar,” “$” and “US$” are to the legal currency of the United States;
• “SEC” are to the United States Securities and Exchange Commission;
• “Securities Act” are to the Securities Act of 1933, as amended; and
• “Exchange Act” are to the Securities Exchange Act of 1934, as amended.

On December 27, 2013, Dalian BAK Power, a wholly owned subsidiary of BAK Asia, was incorporated in Dalian. Dalian BAK Power is expected to be engaged in the manufacture of the high power batteries.

1

Overview

We are a leading global manufacturer of lithium-based battery cells. We produce battery cells for OEM customers and replacement battery manufacturers that are the principal component of rechargeable batteries commonly used to power the following applications:

• cellular phones and smartphones;
• notebook computers, tablet computers and e-book readers;
• portable consumer electronics, such as digital cameras, portable media players, portable gaming devices, personal digital assistants, or PDAs, camcorders, digital cameras and Bluetooth headsets; and
• electric bicycles and other light electric vehicles, hybrid electric vehicles and other electric vehicles; cordless power tools; and uninterruptible power supplies, or UPS.

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

During the first quarter of fiscal year 2014, we continued the implementation of our business plan to expand our high-power lithium battery production capacity in response to evolving market demands. In particular, we developed and supplied cylindrical cell packs for use in high-capacity public-use electric vehicles as part of a strategic cooperation program for electric vehicle development with a major Taiwan-based automobile manufacturer at our Tianjin facility. We are also expanding our prismatic cell production capacity through improvements to our automatic production line for the smartphone market. During the transition period, we gradually reduced our supply to the replacement market. However, due to the intense competition in the lithium Li-ion battery market and that we are still in the process of transitioning to the high end market, our market shares decreased sharply. In addition, as we are facing a more challenging business environment and the Chinese government has placed tightening lending policies on state-owned banks in China, we encountered more difficulties in obtaining funds from local banks, and have a number of past due liabilities to suppliers and third party creditors.

We have experienced net losses during the past two fiscal years. We generated revenues of $42.4 million and $63.7 million for the three months ended December 31, 2013 and 2012, respectively, and net losses of $5.3 million and $28.2 million during the same periods, respectively. As of December 31, 2013, we had an accumulated deficit of $231.6 million and net liabilities of $48.6 million.

We have net liabilities, a working capital deficiency, accumulated deficit from recurring net losses incurred for the current and prior years and significant short-term debt obligations maturing in less than one year as of December 31, 2013. We have been suffering severe cash flow deficiencies. Because we defaulted on repayment of loans from Bank of China in August 2013, we are experiencing and, we believe, will continue to experience significant difficulties to renew our credit facilities or refinance loans from banks. Upon request of Bank of China, Shenzhen Municipal Intermediate Court has ordered to freeze all of our properties in Shenzhen BAK Industrial Park and Tianjin Industrial Park Zone near the end of fiscal year 2013 whereby we may not transfer these assets or pledge these assets for any other borrowings. In order to extend the bank loans to various dates through May 2014, we were required to pledge 100% of our equity interest in Shenzhen BAK and almost all of our assets in Shenzhen and Tianjin, including land use rights and property rights, equipment, accounts receivable and inventories. We repaid our defaulted loans from Bank of China on January 9, 2014 and our frozen properties were released by the court on January 13, 2014. As of December 31, 2013, we had access to $154.2 million in short-term credit facilities and $38.2 million in other lines of credit, almost all of which were utilized to the extent of short-term bank loans of $153.1 million and bills payable of $36.7 million, leaving only $2.6 million of short-term funds available under our credit facilities for additional cash needs These factors raise substantial doubts about our ability to continue as a going concern.

2

We intend to sell part of our low efficiency assets and appreciating land and properties to repay our short term debts and to provide cash for the development of more promising products such as high power batteries and Electric Vehicle batteries. We transferred our 100% equity interest in Tianjin Meicai to an unrelated party on August 27, 2013. We also intend to sell our 100% equity interest in BAK International and its subsidiaries (including all their assets and liabilities), and the properties in Tianjin. We are in negotiations with the potential buyers about contract terms and clauses. We intend to obtain the approval of our shareholders before we close the transactions. Prior to the completion of these disposals, the potential buyers preliminarily agreed in November and December 2013 that they would lend sufficient money to us to help us repay past due and maturing bank loans, on the condition that we make certain pledges and guarantees, including pledging our 100% equity interest in BAK International. On December 17, 2013, Shenzhen BAK entered into a loan agreement, or the Loan Agreement, with Mr. Jinghui Wang, the sole shareholder of a potential buyer, pursuant to which, Mr. Wang agreed to initially lend us the aggregate amount of RMB370 million (approximately $61.1 million) . On January 14, 2014, BAK International entered into a corporate guarantee with Mr. Wang, under which BAK International irrevocably and unconditionally guarantees to the lender timely performance by Shenzhen BAK of all its obligations under the Loan Agreement. On the same date, we entered into a corporate guarantee with Mr. Wang, to irrevocably and unconditionally guarantee timely performance by Shenzhen BAK of all its obligations under the Loan Agreement. In addition, on January 14, 2014, we and BAK International entered into a Share Mortgage with Mr. Wang, under which, China BAK Battery, Inc. pledges 100% of its equity interest in BAK International to the lender as security for the performance of Shenzhen BAK’s obligations under the Loan Agreement. If Shenzhen BAK defaults on its repayment obligation under or in connection with the Loan Agreement, the lender, as the pledgee, will be entitled to dispose of the pledged equity interests. Up to the date of this quarterly report, we have received RMB370 million (approximately $61.1 million) pursuant to the Loan Agreement and an additional RMB150 million (approximately $24.8 million) from Mr. Wang.

In addition, we have entered a letter of intent with a potential buyer of BAK Tianjin for a consideration of RMB150 million (approximately $24.8 million) and the potential buyer agreed to lend us the aggregate amount of RMB130 million (approximately $21.5 million). Up to the date of this quarterly report, we have received RMB119.5 million (approximately $19.7 million).

Up to the date of this quarterly report, we had repaid RMB595.6 million (approximately $98.4 million) of bank loans.

After the disposal of these assets, we will retain BAK Asia and its subsidiaries, BAK Dalian and Dalian BAK Power. It is our understanding that the Dalian government will grant certain government subsidies to us, including but not limited to land use rights at a favorable price. During fiscal 2013, we received a subsidy of RMB150 million (approximately $24.8 million) from the Management Committee of Dalian Economic Zone, to finance our removal of operating assets from Tianjin to Dalian. We are building a new manufacturing site in Dalian with all the operating assets, primarily machinery and equipment, moved from BAK Tianjin, while retaining its customers, employees, patents and technologies. BAK Dalian will focus on the new energy high power battery business, for use in electric vehicles, light electric vehicles and other high power applications. We believe with the significant reduction of liabilities and disposal of the traditional low margin battery business, we can continue as a going concern and return to profitability.

It is expected that after the restructuring mentioned above, China BAK will continue to be a US listing company with a low level of liabilities.

First Quarter Financial Performance Highlights

The following are some financial highlights for the first quarter of our fiscal year ending September 30, 2014:

• Net revenues: Net revenues decreased by $21.3 million, or 33.4%, to $42.4 million for the three months ended December 31, 2013, from $63.7 million for the same period in 2012.

• Gross profit: Gross profit was $3.5 million for the three months ended December 31, 2013, a change of $7.7 million from a gross loss of $4.2 million for the same period in 2012.

• Operating loss: Operating loss was $1.9 million for the three months ended December 31, 2013, an improvement of $16.0 million, or 89.4%, from an operating loss of $17.9 million for the same period in 2012.

• Net loss: Net loss was $5.3 million for the three months ended December 31, 2013, a decrease of $22.9 million, or 81.2%, from $28.2 million for the same period in 2012.

• Fully diluted net loss per share: Fully diluted net loss per share was $0.42 for the three months ended December 31, 2013, as compared to $2.23 for the same period in 2012.

3

Financial Statement Presentation

Net revenues. Our net revenues from sale of batteries represent the invoiced value of our products sold, net of value added taxes, or VAT, sales returns, trade discounts and allowances. We are subject to VAT, which is levied on most of our products at the rate of 17% on the invoiced value of our products. Provision for sales returns are recorded as a reduction of revenue in the same period that revenue is recognized. The provision for sales returns represents our best estimate of the amount of goods that will be returned from our customers based on historical sales return data. Rental income for commercial property leases and management is recognized on a straight-line basis over the respective lease terms.

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

Research and development expenses. Research and development expenses primarily consist of remuneration for R&D staff, share-based compensation, depreciation and maintenance expenses relating to R&D equipment, and R&D material costs.

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

General and administrative expenses. General and administrative expenses consist primarily of employee remuneration, share-based compensation, professional fees, insurance, benefits, general office expenses and depreciation.

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

Government grant income. We present the government subsidies received as part of other income unless the subsidies received are earmarked to compensate a specific expense, which have been accounted for by offsetting the specific expense, such as research and development expense or interest expenses. Unearned government subsidies received are deferred for recognition until the criteria for such recognition could be met. Grants applicable to land are amortized over the life of the depreciable facilities constructed on it. For research and development expenses, we match and offset the government grants with the expenses of the research and development activities as specified in the grant approval document in the corresponding period when such expenses are incurred.

Finance costs, Net. Finance costs consist primarily of interest income, interest on bank loans and other borrowings and are net of capitalized interest.

Income taxes. Since Shenzhen BAK was acknowledged as a “New and High technology enterprise,” it is entitled to a preferential tax rate of 15% for each of the calendar years 2011, 2012 and 2013. BAK Battery is subject to an income tax rate of 25%. BAK Battery did not incur any enterprise income tax for the calendar year 2013 due to the current tax losses carried forward from calendar years 2011 and 2012. BAK Tianjin is currently paying no enterprise income tax due to cumulative tax losses. Our Canadian, German, Indian, and Hong Kong subsidiaries—BAK Canada, BAK Europe, BAK India and BAK International—are subject to profits tax in their respective countries at rates of 38%, 25%, 30%, and 16.5%, respectively. However, because they do not have any assessable income derived from or arising in those countries, they have not paid any such tax.

Pursuant to the Provisional Regulation of China on Value Added Tax and its implementing rules, all entities and individuals that are engaged in the sale of goods, the provision of repairs and replacement services and the importation of goods in China are generally required to pay VAT at a rate of 17% of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayer. Further, when exporting goods, the exporter is entitled to some or all of the refund of VAT that it has already paid or borne. Our imported raw materials that are used for manufacturing exported products and deposited in bonded warehouses are exempt from import VAT.

4

Results of Operations

Comparison of Three Months Ended December 31, 2013 and 2012

The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.

(All amounts, other than percentages, in thousands of U.S. dollars)

Net revenues. Net revenues were $42.4 million for the three months ended December 31, 2013, as compared to $63.7 million for the same period in 2012, a decrease of $21.4 million, or 33.5% . This decrease was primarily attributable to the reduction in our revenue from our manufacture of batteries segment with revenue decreasing from $63.7 million for the three months ended December 31, 2012 to $41.2 million for the three months ended December 31, 2013, offset by an increase in our revenue from our property lease and management segment amounting $1.2 million. We leased out the Research and Development Test Centre starting from September 2013 onwards.

5

The following table sets forth the breakdown of our net revenues by battery cell type.

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

The following table sets forth the breakdown of our net revenues from reconditioned and normal products for the three months ended December 31, 2013 and 2012, respectively.